The PRAM

The Parameter RAM is a small amount of "nonvolatile" RAM (NVRAM) that holds various settings that the system can use before the operating system loads, and maintains these settings even when the computer is turned off. There is a small battery on the computer's mainboard that helps maintain the PRAM settings when power is off.

Many times when people's computers get bogged down and they are experiencing problems, advice will be given to "Reset the PRAM." In certain situations this can fix things, but many times people just blindly throw that advice out there. Resetting the PRAM may sound like an exotic fix that somehow may magically cure something; however, many times doing this is just a shot in the dark. As such, it's not necessarily bad for the computer, but may lead to customized settings such as alternate boot devices and speaker volumes being put back at default values. If you have problems with any of the following then a PRAM reset might help you out:

Volume changes or won't stick.
Video resolutions not sticking or not all available
Time zone information and clock settings
Boot volume isn't set (question mark shows briefly before booting)
Keyboard repeat rates
Mouse input rates (click and tracking speeds)
Default system fonts

Prior to OS X, the PRAM held information for networking, but that has been removed so any network troubles should not be affected by PRAM settings. Sometimes there have been odd problems that have been cured by PRAM resets, including one reported on recently by MacFixIt regarding spell-checking not working. It is possible that settings in the PRAM may indirectly affect various system functions like the spell checker, but knowing this is anyone's guess.

If these settings constantly get reset even when you have not manually reset the PRAM, the computer's logic board battery may need replacing.

To reset the PRAM, reboot the computer and hold the options-command-P-R keys at the same time. The computer will chime, and then continually reset and chime while these keys are held. Allow it to cycle a couple of times and release the keys and allow the computer to boot normally.

NOTE: Resetting the PRAM may require you to set some settings such as mouse speed and keyboard rates again.

The SMC/PMU

The System Management Controller (Intel Macs) or Power Management Unit (PowerPC Macs) is a chip that manages the power for various system components such as the fans and backlights, as well as the circuits that initiates power to the whole system when you turn on your computer.

Like the PRAM, many people readily offer suggestions for resetting the SMC or the PMU. However, there are specific behaviors that will benefit from SMC/PMU resets, and others that won't. For the most part, the power management in the computer should only be reset if you experience problems with seemingly "stuck" settings, or nonfunctional indicators, especially any on the hardware itself (power adapter indicator, or battery life for laptops). The following list of situations are some instances where a SMC/PMU reset can be beneficial: