How to practice?

James pretty much summed up the important things.  The most important things are to have a practice goal, and practice every day.   

I also like to add technical exercises to my routine to help with hand strength and dexterity.   I'll run scales for an hour until my hand cramps.  I'll take a break, and then run scales some more.   This sounds like work, but I know that the payoff for it is me becoming a much better player, so its actually fun and rewarding.

These are some of my common practice goals and specific exercises I like to do.

Technical:  Scales and arpeggios.  Picking technique.  Hand stretch. 

Theoretical:  Learn a new key pattern.   Write a ditty in a specific key.   Find all of a particular note or chord on the fretboard.   Learn all of the chord voicings for a given chord.   Circle of Fifths.

Compositional:  Learn a new song.  Write a new song.  Practice common chord progressions.

And it's all fun.  Having an instrument in my hands makes me happy.

My long term goal is to play scales in circle of 5ths order.  That's pretty much the standard for any serious musician.  Short term, though, the answer is "it depends."

If I'm doing nothing but strengthening exercises, I'll simply play four fret spread patterns across the fretboard.

Put your index finger on any fret on the E string and viola.

From A, for example.

-----------------------------------5--8-----------------------------------------------------
-----------------------------5--8--------5--7-----
----------------------5--8---------------------5--7-----
----------------5--8----------------------------------5--7--
---------5--8-------------------------------------------------5-7--------------5--6-----------------
---5--8---------------------------------------------------------------5--7------------------------------

You get the idea.  The point here is to simply work the muscles in your hands, and the articulation in all of your fingers.  These are also good picking exercises, too.  You can barre and play these as well.   Play them until it hurts.

If I'm doing some theory or compositional work, then I'll play legitimate scales.   Last night I wrote a little riff in D minor.  So I made it a point to try to play Dm all over the fretboard, not just at the open position, but all the way down the neck.   Dm is also the natural minor for F major, so I practiced F major, and all it's modes as well.

I guess the one thing I advocate that I know is not popular is to not try to play songs until you have developed at least some coordination and strength in your hands.  When I picked up the guitar, I did so because I wanted to play the instrument as a whole.  I didn't just want to knock out other peoples tunes.   So for the first four months or so, I did nothing but chord progressions and those spread scales I put up above.  After that I incorporated songs into my routine, and now I pick up new songs easily, and can transpose without much effort.

You should develop a practice routine that works for you.  Setting goals is always a good first step.

Oh, one other thing.  This will help you practice every day.  Keep the guitar out of it's case.  Go buy a stand, and keep the guitar on the stand next to wherever you find yourself sitting at the end of your day.  It makes it super easy to pick it up for five or ten minutes worth of practice.  If it's in the case, it's a hassle to get out, and put away, so you're less inclined to do so.

I guess it depends on the style you're trying to play.  I've been getting into using arpeggios over jazz progressions, which means that you've got to keep track of what chord the backing is on and play the right arpeggio notes at the right time...