It's all by feel & knowing how much torque you need.
For drilling, set all the way up.
For screws set lower. In general the smaller the screw, the lower the setting. It's always easier to start low & turn higher if need be.
Drywall screws into wood studs will need a fairly high setting to drive the screw into the wood & counter sink the head below the drywall.
A smaller screw into sheet metal or a predrilled hole for a wood screw is much easier to strip out.
For small one off things, I don't rely on the clutch as much, but use the variable speed trigger to prevent stripping.
Also the bit needs to fit the screw properly, be pushed tight against the screw & be held as perpendicular as possible. Screw bits come in a number of sizes & should be discarded when they become worn.
Don't forget about ye olde hand operated screwdriver. They are the best thing to finish off driving in a delicate screw that you don't want to strip.

I usually leave mine on the drill setting (no slipping at all) and use feel and experience to know when to slow down and stop.

I wouldn't ever rely on the clutch to save me because each piece of wood react differently and clutch settings will vary from tool to tool.

I've been reading a little more about it and some others say some homeowners usually buy bits and screws that are inferior in quality from big box, etc, thus rounding screw heads and dulling drill bits quickly. Anotgher guy said he only used screws from Vermont-American and square-head screws. Who knows, but sounds expensive for small projects.

Okay, thanks guys. Sounds like good advice. I think the trick with my drills are to be able to start the drill slowly and increase speed as needed instead of the jump to the fast speed as soon as you touch the button. Can't seem to regulate my finger pressure right.