Summary
On Facebook, check Settings, Privacy Settings, Applications and Websites, What friends can share about you. Then click on Edit Settings. You probably want them all set to friends only.
Run applications with care. The popular ones are probably okay, but beware of new and unfamiliar applications
Details
The news articles about Facebook privacy finally got my attention so I decided to finally check out what's going on there.
The most important thing is to go to the Privacy Page and check out the settings there. Even after you check the little “simplified” page that the special announcement on Facebook shows you, it's still important to go the Privacy Page and check all of the settings.
Follow the menus (starting at the top right of the screen): Settings > Privacy Settings.
There's no immediate danger involved in any of these. It's all about how much you want to share. I generally restrict just about everything to just Friends.
The one I'd pay careful attention to is Settings > Privacy Settings > Applications and Websites > What friends can share about you. Then click on Edit Settings.
Just to be clear about what this means, when you use something like Something-ville, or My Family, etc., those are applications. They are written by, well by anyone (you could write youself), and when you join/use them, you basically give them access to your Facebook account.
I believe that up to now, such applications had access to all of your information and they could do with it what they wanted to. I don't think anyone has a reason not to trust some of the more popular apps that are on Facebook. LOTS of people are using them and I've not heard of any problems. Still, it's a good idea to be cautious and not just grab onto any application that pops up.
A major part of this recent change is to let you limit how much of your information such applications can share with anyone.
Some folks may have noticed that I don't use (knock on wood) any applications at all on Facebook. I'm not at all saying that everyone should avoid them. In my case I'm not ready to put time into them. Still, though, I also don't know who they are from, how trustworthy they are, and haven't taken the time to figure all of those details out.
With these new settings (that I've restricted to all friends access, only) I'd feel safer in actually using one of the apps.
As a final thought, I'd be careful about the Friends of friends setting. As I understand it, that means not just your immediate friends can see something, but their friends as well can see it. Most of the time, that's probably okay, but if I learned anything from MySpace, it's that only two hops away from someone you know are some pretty seedy people. It's sad I know. On the other hand, most people you've ever heard of are probably only two hops away, maybe three, at least as far as acquaintance goes. If you believe, Kevin Bacon, six hops cover everyone in the world.*
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* Via Google, I find the population of the world for 2008 is 6,692,030,277. We want to know what x is for x6 = 6,692,030,277.
log x6 = log (6692030277.00) = 22.62
6 log x = 22.62
log x = 22.62 / 6 = 3.77
x = exp(3.77) = 43.41
I think this means that, if everyone knew 43.41 different people, with no overlap, then Kevin's six degrees would work.