The Title Tag not only communicates theme of your web page to human visitors but is also considered very important by Search Engine crawlers. The Title Tag is most important of all Tags. Almost all crawler based search engines use Title Tag to gather information about page. Search engines use your Title Tag to evaluate page's relevance to its content, inbound links, outbound links, alt tags, and a host of other factors. A carefully constructed Title Tag can have a large positive impact on your page's ranking with search engines.
In addition, Title Tag is hyperlinked text title that is displayed in search engine results page. This is hyperlink a user clicks on to go to your web site. The Title Tag is also used as text when you ‘bookmark' a page or add a certain web page to your ‘favorites' list in your browser.
Since Title Tag plays a vital role in your site's ranking, you need to pay a lot of attention to words that appear in Title Tag and order in which they appear. Put your important keywords at beginning of Title Tag. This can have added benefit of making those words appear in bold in search engines result pages. Develop a crisp Title Tag that includes your most relevant keyword phrases for that page. The keywords in Title Tag are given a high value when it comes to search engine trying to figure out what your page is about.
It's important to be highly focused. You should use same keywords not just in your Title Tag, but also in your page content, Meta Description, and Meta Keywords Tags as well. If keywords in your Title Tag don't appear in page content, then avoid using them.
From Google's Guidelines for Webmastershttp://www.google.com/webmasters/guidelines.html
Design and Content Guidelines:Make a site with a clear hierarchy and text links. Every page should be reachable from at least one static text link. Offer a site map to your users with links that point to important parts of your site. If site map is larger than 100 or so links, you may
want to break site map into separate pages. Create a useful, information-rich site, and write pages that clearly and accurately describe your content. Think about words users would type to find your pages, and make sure that your site actually includes those words within it. Try to use text instead of images to display important names, content, or links. The Google crawler doesn't recognize text contained in images. Make sure that your TITLE and ALT tags are descriptive and accurate. Check for broken links and correct HTML. If you decide to use dynamic pages (i.e., URL contains a "?" character), be aware that not every search engine spider crawls dynamic pages as well as static pages. It helps to keep parameters short and number of them few. Keep links on a given page to a reasonable number (fewer than 100).