Having converted just three public domain books I cannot present myself as an expert formatter, but being picky about typography and the general appearance of text, I thought I'd pass on a few things I've learned.
For what it's worth, I edit the HTML in Notepad++ and then import it (via an "invisible" TOC file that is nothing but a list of references to the source files) into Calibre. I use CSS for formatting, but none of the tips here depend on this; if you prefer, you can do all formatting in-line.
My goal has been to make the typography as much as possible like the printed text. If the book uses an all-caps centered boldface for chapter titles, so will the e-book. If a long passage is printed as a block quote in a smaller font, it is so treated as far as the Kindle allows. The chief exception is that I don't reduce the font size for the text of footnotes, since the smaller size in printed text is mostly a space-saving measure that doesn't need to be taken with e-books.
When you start messing around with Kindle formatting you soon realize the limitations. For instance, you can't set a right margin for a block quote. Sensibly, Kindle judges that screen space is too limited for that luxury, though it allows you to set the left margin. You can create a hanging indent paragraph style, but I've been unable to replicate two levels of hanging indent (such as in a block of verse where alternate lines are indented differently, and you want both styles to hang when text is wrapped).
Simple tables work well. For instance, say you want to publish an epic poem with the verse numbers in the left margin every so often. A simple table of one verse per row, with blank left-hand cells for the unnumbered verses, works well. Don't try to put the verse number at the top of the cell and then cram five or ten lines of verse into the same row; the results are unlikely to be satisfactory. To override the default decisions about column width, I've found that you can set the width of the first cell to a percentage of the table, and the rest of the column lines up neatly.
Superscripts (and presumably subscripts) are a pain. I have not found any way of superscripting a footnote number without creating blank space above the line. Some commercial e-books are sold this way and to me it looks sloppy. My solution has been to simply print the footnote numbers on the baseline in a slightly smaller font and lighter color, or bracketed if there are not too many of them. Aside from these cues, the link underlining sufficiently sets the note apart from the text.
Speaking of smaller fonts, the Kindle does recognize the font-size attribute, which I generally set as a percentage. Of course, there is no font smaller than the smallest regular display font, so effects such as block quotes in a smaller size only work if the user sets a font larger than the minimum.
You can also use the font-variant attribute to create small caps (where lower-case letters are given the form but not the height of capitals), and the text-transform attribute to set all capitals. Why would you want to do this second thing rather than just typing the capitals in the first place? Suppose you have a chapter heading that reads, "<h1>CHAPTER 1<br>THE COMING OF SPRING</h1>". The TOC generator shows the title just like this, without the line break. What if you want this to appear in the TOC as "Chapter 1: The Coming of Spring"? Well, type it just that way between the heading tags (inserting the line break), and then set text-transform to "uppercase". The transformation determines how the heading looks in the text, but the Calibre TOC generator ignores it. As for the magically appearing colon: applying a pure white font color to it makes it invisible on the page, but in the TOC it appears as plain black text.
Drop caps don't work, or at least I haven't found a way to make them work. Kindle wants to display the big character on top of the line, and I believe I can understand why.
Non-break spaces are available and can be used to advantage; for instance, to create an equal space after each number in a list regardless of the vagaries of justification. I would also probably use one in something like "St. Paul" to keep the line from breaking between the sainthood and the man. But they must be used sparingly to keep justification from failing too often.
You can also help Kindle justification along by using en dash surrounded by normal spaces in place of em dash. Curiously, the Kindle will not break at dashes (or hard hyphens), creating in effect some very long words and some ugly spread-out neighbors. Mine is not necessarily the most elegant solution but it does make for a tidier look overall. You can always add a nonbreak space on either side if you object to the dash appearing at the end or at the beginning of a line.
Don't forget dingbats and other symbols, which can be used to mark the ends of chapters and so on. Kindle has a small selection as part of its limited support for Unicode, documented at http://kindlegen.s3.amazonaws.com/Am...Guidelines.pdf
Lots has been said about curly quotes, yet I continue to be surprised by the number of e-books that appear without them. Straight ditto marks are for documents, not books. Calibre makes it easy to do the right thing by applying the SmartyPants algorithm when converting to Mobi; you can also run this Python script yourself to save the converted punctuation in the source files. Information about how to apply "smart quotes" in Word is readily available.
A lot of books don't require much formatting and the Kindle defaults are "good enough." But it's possible to bring a distinctive look and feel to e-books by exploring the Kindle's display abilities and going beyond the basics.