PC power supplies are generally rated by wattage. This is the amount of power they can supply at a given temperature (power supply electronics are less efficient at higher temperatures). The nice companies rate their PSUs at 50C, a realistic temp for the inside of an operating PC. The less nice companies rate at 25C (room temperature) so you want to take those ratings with a grain of salt.
As for selecting the appropriate power level for your system, higher is always better. If your components only draw 200W, and you have a 500W PSU, the PSU will only be putting out 200W (500W is simply the maximum level the supply can put out). Using a power supply that can't put out the juice your system needs will lead to an unstable system, or even a system that won't boot. To estimate the power needs of your system, look at a) what processor you're using b) if your video card requires non-bus power and c) how many hard disk and optical drives you're using.
A Pentium 4 Prescott processor will dissipate more than 100W of power under load. Athlon 64, and 64 FX, and pre-Prescott P4s also dissipate a good deal of power. A Pentium M can dissipate as little as 23W of power, however. You can probably get decent power dissipation numbers from your processor's manufacturer.
Your modern GeForce 6800 or Radeon X850 video card requires an external power connector (they've been showing up since the GF-FX/R9700 era though). For such a card, you're going to want to figure on needing 50-75W of additional power. The card manufacturers even recommend dedicating a power rail (that's one of the chains of molex connectors) to the graphics card. PCI Express makes this easier by specifying a special connector for PCI-E video cards.
Hard drives and optical drive can consume a lot of power, especially high-speed 15K SCSI drives and the like (the 10K WD Raptor comes to mind). I'd figure 25-50W per drive, depending on speed and manufacturer recommendations.
Another important factor is selecting a PSU beyond the wattage rating is how stable/accurate its output is. A PSU that delivers 800W of peak power is useless if the 12V line bounces +/- 1V. For this kind of information, reviews by technology magazines and web sites, like Maximum PC or Tom's Hardware are useful.
If you want my recommendation, I usually suggest the Turbo-Cool 510 Deluxe from PC Power and Cooling, as it has gotten consistent high praise from reviewers (not that I have one; my system still runs the stock 200W that came with the system
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