How to knit a swatch and check your gauge

Start with the yarn you want to use in your project and the size needles called for in the pattern. Knit a swatch approximately six inches square. It doesn't have to be perfect, but most gauge measurements are based on four inch squares, so you'll want a little more to work with.
When you've finished your swatch, lay it out flat on a table. Pick a point to measure from and use a straight pin to mark that spot. Use a tape measure to mark out four inches and count the number of stitches. Use the same process to count the number of rows.
Compare these numbers to the numbers listed in your pattern. If you're spot on, congratulations and get to knitting. If you have more stitches per inch than the pattern calls for, that means your stitches are too small. Try again with larger sized needle.
If you have fewer stitches per inch than the pattern states, your stitches are too big. Make another gauge swatch using smaller needle.
The length measurement is not as critical as the number of stitches per inch on most projects, because you can always adjust that by knitting more or fewer rows.

If you are not concerned about the finished size of your project, go ahead and skip the gauge swatch. Projects like scarves, baby blankets, shawls and throws don't need to be an exact size, so you can probably get away with skipping this step.
If you're making anything which needs to fit, it pays to take the time to make a gauge swatch.