There are many leak down testers on the market. You can actually make your own with some hardware store parts and a fish tank.
Operation of "most" leak down testers
The procedure of operation depends on whether or not you have the cylinder head attached to the engine block or not. If the head is attached, your leak down tester should have an attachment that screws into the spark plug hole. Once fastened you can use your compressed air (usually around 100psi) to fill the the cylinder with air. It's very important to ensure that you have the cylinder that you are testing at TDCC (Top Dead Center Compression). This means that the cylinder is completely sealed and all valves are closed on that particular cylinder, thus giving you a nice platform for testing.
Testing with head off
When testing with the head off you often use a method similar to this.
I do not swear by this method, and the guy seems to take a while to get to the point. So, you can form your own opinion on this. It's more fit for finding cracks on the head, however though I have found that sometimes my leak down tester finds a fault and it turns out to be a cracked head; That can be difficult to diagnose with the engine assembled; Just food for thought =)
Air Pressure Regulator
We use the air pressure regulator for a couple of reasons. Some cars have a higher compression rating than others, so you need to be able to regulate the pressure accordingly. When you're talking about pressure in the cylinder, we have a constant and combustion pressure. You want to be able to test up to your max combustion pressure, but also test a constant pressure that is a bit lower for fine tuned diagnostics.
The reason for this is that the cylinder is not under CONSTANT 210psi and the cylinder actually jumps up a little more due to fuel and oil lubrication when running. To perform a good leak down test that yields good results, you need to be able to regulate pressure. The valves may be holding at 100psi, but your compression rings on the piston may only hold to 90psi.
Issues you can trouble shoot with a leak down tester
Mainly when using a leak down tester, you'll be troubleshooting an issue with a head gasket, leaking valve seals, and bad piston rings. Essentially anywhere air could rapidly escape from the combustion chamber that wasn't intended when the engine was engineered and that creates an issue while it's running.
Cracked heads are a different story, as I have seen some leak oil into antifreeze and you wouldn't have known unless you actually pulled the heads off to see the cracks. Thats a different topic of itself.
Where to find the leak
When using the leak down tester, you want to listen where your oil goes in and your coolant reservoir or cap comes off. This will allow you to audibly hear where exactly the leak is. You should hear a small bubbling noise, or something like that. If the leak is significant, it will most likely bubble up in the radiator or coolant reservoir. If it's bad enough it will hiss loud enough to hear.
When doing this you want to start out at a lower PSI and gradually increase. You also want to leave it to sit for about 30 minutes and see how much it's decreased in pressure. A few PSI isn't anything to worry about if it's an engine with a lot of miles on it. If all of the pressure is gone within 5 minutes, you may have some additional issues that need to be addressed.
Mainly you want to pay attention to any noise coming from your coolant reservoir or radiator. If you set your pressure on the leak down tester too high, you can actually move air past the piston rings and give a false diagnosis. Keep that in mind.
Removing the oil pan or drain bolt and listening for hissing is also an option. Have a rag or towel on hand.