Flykiller posted this on COTI (link here). It's for playing traveller, an Science Fiction RPG, but most of the rules would apply to any. You may have to register (not sure) to see the full post.
It's the best advice set in as brief a way as possible as I've ever read on how to run a good RPG:
The Seven Adventure Components
Every successful game has certain features. Here they are.
Combat, the chase, evasion, recon, disaster, rescue, romance, moral dilemas, whatever. Something should happen that sets the stage for players to interact with your world. It need not be violent or earth-shaking as even small things can be very effective.
Player Choices and Multiple Approaches
Players should have options to influence the game, accomplish their goals, and write the story. There should be more than one way to get the job done.
Player choices should have an effect on the course of the game. The effects need not always be positive but the idea is for the player to be able to make a difference. This is the reason for and core of every role-playing game.
Possibility of Success
The game referee should not dispense success or failure at his whim, nor should he allow the players to do impossible things. But, given boldness, hard work, ingenuity, luck, or, perhaps, a little help from a friendly non-player character, the players should have an opportunity to succeed. Like the Bible says; "...desire fulfilled is a tree of life."
The game referee should be ready to respond to any course of action the players take, and incorporate it into his game if possible. The referee is not the sole source of the storyline.
Color / Mystery
Each game session should have some interesting bit of local color or inscrutible mystery to it. It need not be profound, weird, or affect the course of the adventure, but it should leave the players feeling that they've been somewhere different from their normal world.
The players should always look forward (with happiness or dread or simple curiosity) to things that will be happening in the next game session.
The Four Referee Approaches
Space is big. So is Traveller. No matter how much you prepare you will start each game with the realization that you are completely unprepared. Your players will constantly move in directions that you never expected and cannot control. Here is how to cope with that.
Set the Big Picture and Major Themes
Decide on the Big Picture for your universe, or rather the little corner of it in which the players start. What is the history of the area, who are the nobles and the corporations and the crime bosses and the other major players, what do they all want and how do they interact? Then when the players run off in an unplanned direction you will have some idea of how to procede. There is no need for any great depth to this, just an ability to expand and accomodate changes. Details will come later.
Set the Adventure Stage
Start with where the players are, and consider where they might go. Minimize rigid plans. Maximize opportunities for the players to act. Draw up important people - who are they, what do they want, and how do they think they can get it? Sketch important places - what are these places, what are they for, who and what are there? Place significant equipment, obstacles, and terrain. Schedual important events. Think of what the players will want and need, and make it available (though not necessarily obvious, of course). Your job is not to plan the adventure, but to set the stage. Consult the Seven Adventure Components. Is there action? Do the players have choices? Will their choices be effective? Can the players possibly succeed? If the players do something unexpected can you respond? Is there a bit of color? Is there enough going on and are there enough goals to last more than one game session? Put brief descriptions and sketches on paper (clearly written) and have this ready to consult during the game, along with any detailed information that might be necessary.
Let the Players Take the Stage
When the game session begins this should be the time you relax and let the players do all the work. Sit back and smile. If you have set the stage and have included the Seven Adventure Components in your preparations then the players will have everything they need to generate a successful adventure. Act the non-player characters, run the events, operate the stage - let the players run the game.
Usually you will find that much of your preparation is untouched, as the players never get to it. Just keep the materials and use them in a later game. Soon you will find you have more material than you can keep track of.
Let Your Universe Grow
Your first game universe will be sparse and thin, but every game session will generate choices, decisions, events, rulings, people, and thoughts that can be incorporated into the Big Picture to expand your universe. Keep a record of these. As you fill in the gaps you will find that each game session not only paves the way for the next but also suggests many other adventures.
The Seven Referee Practices
Being a game referee is hard work. Here is how to make it easier.
Roll the Dice
You can't prepare for everything. Every step of the way the players will ask for and attempt things you never anticipated. When they do, just roll the dice. "Do I overhear the conversation?" Roll the dice. "How many ships are docked at the port?" Roll the dice. "I steal the dump truck and crash it through the gate." Roll the dice. Occasionally roll them just to keep the players wondering what is going on. If the players are active you might be rolling dice once or twice a minute. Roll them behind your hand so the players don't see how you are interpreting them.
Feel free to overrule any die roll (one reason to hide die rolls), but letting them stand usually results in a better game.
Minimize Up Front Details
Trying to sound and act like non-player characters can be exhausting after a few hours, and most people aren't good at it anyway. As much as possible keep characterizations on a "he says this, he does that" level and don't try to act out anything unless it greatly enhances the game at a certain point.
Don't try to detail every building, every ship, every wilderness the players may find themselves in. You can't. Use general descriptions when possible.
Don't try to detail every NPC the player characters interact with. There are too many of them. Use general descriptions when possible.
Prepare Lists and Charts
Draw up and keep on paper large lists of names, characteristics, stats, skills, families, ages, and other game details that might be needed. When necessary during a game just point your finger and drop it onto the paper, or roll the dice and find the result, and there it is. This is much easier than thinking up such details on demand in the middle of a game.
Maintain and Read Game History
At the end of every game session write up a quick review of the recent events and keep it as a history of the players' actions. Use this to prepare the next session, and have the players review it from time to time. Sometimes many days pass between games and it helps to jog everyone's memory about what they were doing and why.
If the players wander off into an area for which you are not prepared, simply tell them that you aren't ready and that you will need to postpone that portion of the game until later. In the meantime perhaps there may be other action to be taken in the remainder of the game session.
If a major contradiction develops in your game, admit it and make the best repair you can. Then move on. Traveller is Shotguns in Space - it is not Accurate Adventures in Accounting.
Never hesitate to stop the game to think a minute. Such pauses make good snack breaks anyway.
After each game session update the game history and immediately prepare the next session. Update the Big Picture Major Themes. Think of where the players are now and where they might go, consider their intentions and yours, and see if new details such as names, deckplans, or descriptions are warranted. Then reset the stage while consulting the Seven Adventure Components.
Have a Good Time
This is important. If you are not enjoying the game then chances are your players aren't either. Set up situations and characters that you find interesting, develop game themes that last from session to session. If the players do things you don't enjoy then try to work it out with them, or else set them up with another referee while you look for other players. If you get tired then see if someone else will referee for a while. Refereeing should be a hard-work hobby, not a hard-work job.