I can't say I'm fabulous at shadows, but here are a few things I do. I use PSE 5.
First off, I usually zoom in until my LO is about 25%. (I've heard more than once that at this %, it looks similar to how it will look printed.)
(Once you've added a shadow, you double-click on the little sun-like icon on the layer to open up the window to adjust the shadow's properties.)
I always change the color of the shadow to a darker shade of the background.
I try to think of how it would look in real life. Paper casts a really small shadow, so I usually use somewhere around a distance of 2 and a size of 2.
For things like buttons, they'll have a thicker shadow, so I'll change the size to somewhere between 10 and 16 (depends on the size of the button). The distance I keep between 2 to 5, since you don't want it to look like it's floating off the page. I use the same reasoning for other elements, like ribbons, etc. I keep the distance between 2 and 5, and then adjust the slider on the size until it looks about right to my eyes.
For stitching, I keep the distance at 0, since I don't want the holes to look like they're floating off the page. I use a size of 1 to 3, depending on the thickness of the stitching.
Just remember, thin items cast a small shadow (so small size) and big items cast a larger shadow (so larger size). Adjust the distance for how far off the page you want it to look. If you don't want it to float, keep the distance small. (If you're trying to make something like a butterfly look real, you'll want both large size and large distance.)
Anyway, that's what I do. Works for me. I'm sure I could make them look even more realistic, but I'm not sure I want to spend that much time. Good luck!