STEP 1: Extend your arms up over your head. Your thumbs should be about two inches away from your forehead. You want to separate your fingers as if someone was placing a volleyball into your hands. Your elbows, which are very important shouldn't be facing out, but be even with your shoulders.
STEP 2: Spread your feet so they are shoulder width apart. When setting, you also want your right foot slightly in front of your left. Your knees have to be bent, but not as bent as when you pass a volleyball.
STEP 3: When you're ready to set, get under the ball and extend your legs and arms to push the ball away from you. Setting backwards is the same process, except you want to throw your thumbs back and use your wrists.
STEP 4: When you set the ball, get directly under it. Your hands should be in the shape of a triangle. Push as high as you can so your teammate can have as much time as possible to jump and hit the volleyball.
If you like visuals, here is a video that teaches you how to set a volleyball.
Volleyball: How to Set a Volleyball. Film. 17 Sep 2013. <http://www.youtube.com/watch?feature=player_embedded&v=d6FYi2TVm1I>.