This is a big question for me right now. I've been procrastinating editing my first novel because I'm afraid I won't be revising the 'right' way unless I scrap virtually everything I wrote the first time and rewrite it all. This is a pretty extreme viewpoint, but it's the impression I get from some writers when I hear they're revising their manuscripts. I always wonder if it's really as bad as they think it is. Do they really have to scrap it all and basically write a whole new book from bits and pieces? It seems like such a tall order, and such a waste of time. I'm all for cut and paste, and playing Dr. Frankenstein when it feels right, but this baffles me.
One of the blogs I'm following is Dawn Brazil's Brilliant Babbles about Books. She has this entry on revision that I found helpful. Feel free to share your own opinions and tips about editing and revision. I'm always interested in hearing more.