It is not sufficient to choose a range of keywords that describe your site or products. Best results are achieved by targeting specific phrases that combine keywords. This approach filters out much of your 'competition' (sites with the same keywords) and delivers more targeted visitors. When testing your search phrases, enclose them in quotes (eg. "search engine optimisation"). People most commonly use 3-word phrases or 2-word phrases in a search engine.
It is important that your search phrases are commonly used in search engines, but not too commonly targeted by other websites. The best measure of this ratio between popularity and competitors is the 'Keyword Effectiveness Index', invented by Sumantra Roy. This is a simple formula (KEI = P/C x P) that returns a higher number for more effective search phrases.
In some cases we select key phrases that appear to have a low popularity however these phrases may be industry or location specific and therefore provide good results for your website.
Finally, but most importantly, your search phrases should be directly related to text that appears on your site. Whilst it might sometimes seem like a good idea to employ search phrases that are popular or that have a high KEI, search engine operators make their living by making certain that their customers are sent only to websites that have information that they are interested in, and will often 'blacklist' sites that are seen to be trying to 'trick' the search engine algorithms.