.vimrc contains Vim commands executed upon startup and allows you to tweak the editor's behaviour in a myriad of ways. Here is a minimal collection of some sensible non-default settings.

set nocompatible   " allow breaking vanilla vi compatibility - required for adv. features
set incsearch      " Enable incremental searching by default
set showmatch      " Highlight the matches of the last search
set backspace=2    " allow backspacing over everything in insert mode
set autoindent     " always set autoindenting on
set textwidth=0    " Don't wrap words by default
set ts=4           " Change tab spacing to a lower value (default=8)
" Vim 5+ comes with syntax highlighting for many languages, enable it if available
if has("syntax")
  syntax on
endif
set background=dark    " better syntax colours for black terminals
set encoding=utf-8     " you really should be using utf-8 now
set termencoding=utf-8 " ditto
set fileencoding=      " defaults to latin1 otherwise, and converts bytes on read
set fileencodings=     " defaults to "latin1,utf-8" otherwise...

Newer version of Vim (6+ perhaps) can automatically detect the correct syntax highlighting and indenting scheme that should be used for a file. Using the newer version of this (previously only file extensions were consulted) is a simple as putting the following command in your .vimrc:

filetype indent on " Newer indent features