A good way to explain it is that you want the gain to be high enough to get the important noises (rail noises, taps, whatever) but you want it to be low enough to filter out any background noise you might not want. So find a spot in the middle where you can get the sound you want.
If your levels are hitting red thats bad. This is called "clipping".
"Invest in hookers and blow. The stock market is going down but the coke will always get you high." - theabortionator