this is the one million dollar question. I've been looking around for THE best way to do that, but since PDFs come in so many layouts, there are several options, these are just a couple off the top of my head:
1) Mostly text, simple formatting: send it to Amazon for conversion.
2) Two columns: I must confess I haven't tried sending such a PDF to Amazon. I use
Briss, particularly if there are graphics or tables involved. This breaks the PDF into chunks you can easily see in your K screen. You can still use the dictionary to look up words and usually highlight text too. Haven't tried to send a Briss'd PDF to Amazon, though. I wonder what would happen.
3) No columns, but tables: in this case I use
sopdf, which automates the process: it just cuts every page in two and rotates it so you don't have to change the orientation of your Kindle. I use it for PDFs is just want to quickly read (technical stuff, mostly). Looking up words in the dictionary is a hit-and-miss and you can't underline text.
4) Text with headers: I use
pdfReflow to transform the PDF into html, then Calibre for the final transformation into mobi.
I have Adobe Acrobat at work, so sometimes it comes in handy. But since I don't have it at home I only use it to format work-related stuff. I don't know, I don't think it's that convenient, though. It's just me, I guess.
Anyway, I've been trying to arm myself with different tools to use in different circumstances. I'm new to this, so I guess over time I'll settle in one or two methods. Maybe someone will invent the magic pill!