James has a great post on reading webstats that you can view in full on the Work Industries website. Here is a brief overview of the most important points.

Reading Webstats

Webstats Software
Most web hosting packages offer a webstats package. Common webstat packages are AW Stats and Webalizer. These are free packages and give an okay overview of your website’s performance, but there are better packages available that give more accurate and detailed information.

I use Google Analytics. It’s free and you can sign up at:
http://www.google.com/analytics/

Webstat packages aside, there are basic measurements you want to understand.
 

Top 5 Most Meaningful Webstats:

1. Unique Visitors: This is the single best measurement of how many people are coming to your website. A unique visitor is a real visitor to your website (versus a visit by a search engine robot). If you use your work computer, for example, to access the Work Industries website and visit 5 pages on the website, then my web server records that someone using your computer (your IP address) has visited my website.

In the webstats, this would be reported as 1 unique visitor, who made 5 page views. If you visit the site tomorrow using the same computer (same IP address) and view 10 pages, then the webstats show that you are still 1 unique visitor, but you made 2 visitor sessions, and had 15 page views (5 in the first session and 10 in the second).

Unique visitors are NOT the same as hits.

Hits are the number of files requested and served from your server. If you visit a simple webpage with 3 images, this may be reported in the webstats as 1 unique visitor, who made 1 visit, had 1 page view, and 3 hits. If the webpage had 5 images, this might be 5 hits—but it’s still only 1 unique visitor. An increase in hits is not an indicator of an increase in visitors.

2. Visits (or visitor sessions): Visits displays the total number of times people or spiders have come to your site.

3. Page Views: Pages Views are the total number of pages requested and served by your web server.

4. Referrals: The referral log shows where visitors originated from, i.e., what website they were on before they came to your website. A referral could be from a search engine, another website, or a direct visitor (they typed the web address directly into their web browser). You want to be aware of what sources drive traffic to your site. Referrals tell part of the story about how people are finding your site and what websites are linking to you.

5. Search Keywords: These are keyword phrases and terms people use to search for your website. It’s important to know this information and to use those keywords on your website. Web users don’t read, they scan the text for keywords that will tell them they’ve found the right page. Only then will they read.
 

James’ article is a more complete look at the common stats that are reported and the types of statistical trends to watch.

I recommend reading the full article available here.