A lucid dream is normally defined as, "being consciously aware of dreaming while in the dream state." When you are consciously aware that "Hey this is a dream!", you can think about and direct your activities within the dream, remember your waking life, and conduct experiments -- all while understanding that you are aware inside a dream.
Most lucid dreamers use one of these basic techniques:
1) Suggestion -- before going to sleep, they repeat to themselves, something like, "Tonight in my dreams, I will realize I am dreaming and become consciously aware." or "Tonight in my dreams, when I see _______, I will realize I am dreaming"
2) The Castaneda method -- Carlos Castaneda mentioned the idea of "finding your hands" in the dream state. This is how I do it. Before going to sleep, I look at my hands and say to myself, "Tonight in my dreams, when I see my hands, I will realize I am dreaming." After a few nights of doing this consistently, I was in a dream and my hands popped right in front of my face! I instantly thought, "My hands! This must be a dream!" and became lucid.
3) MILD Technique -- S. LaBerge suggest that when you wake up in the middle of the night, you recall your previous dream, and then imagine yourself becoming lucidly aware in it. This is kind of like visual role playing. Then as you fall asleep, you tell yourself, "In my next dream, I will realize I am dreaming"
4) Tholey Technique -- Paul Tholey taught himself to ask many times during the day, "Am I dreaming right now?" By asking this question many times during the day, he was able to transfer that critical awareness to his dreaming, and would suddenly wonder in a dream, "Am I dreaming this?" -- at which point, he would become lucid.
These techniques are explained more at the Lucid Dream Exchange at http://www.dreaminglucid.com -- Just look to the left and click on Incubating Lucid Dreams.
Good luck! Robert Waggoner