Using filters is a basic tool that can help you ignore data that is of no use to you, or that will cause inaccuracies in your data. It’s important that before you start working with filters you know which reports and which data matter to you or your organization, so as to avoid future complications or worse: gaps in your data.
Another tool that helps you organize your data better is segmentation.
Google Analytics provides a powerful set of filters which can easily be set through the Account Settings dashboard. By clicking the option Filter Manager, at the bottom of the Website Profiles table, you’ll be able to access the Filters dashboard. The top right hand option Add Filter allows you to create new filters, based on the following pre-set options:
The custom filter option allows you to create your own customized filter to be able to more precisely filter out or focus on particular data, mostly through the use of so-called regular expressions. Setting up custom filters is a science in its own respect and necessity and use highly depends on your particular situation.
More information on setting up Custom filter:
http://www.google.com/support/googleanalytics/bin/answer.py?hl=en&answer=55492
More information on using regular expressions:
http://www.google.com/support/googleanalytics/bin/answer.py?answer=55582&hl=en_US
http://en.wikipedia.org/wiki/Regular_Expressions
If you have multiple website profiles in your Google Analytics account, you have the option to apply the same filter to all or specific site profiles at once. You can highlight the site profile in the Available Website Profiles menu, within the Filter Manager, and click Add for each site profile.