I've tried to come up with a system that allows me to keep track of where photos are at in my process (which ones are finished, which ones need work, etc), but I have yet to come up with something that is intelligible and that I'll actually use. If you have a system that works well for you, would you mind sharing it?
Really what is important is that you use a certain set of criteria and stick to it. Write it down if you have to, as this will help you to remember it. The specific system that one person uses really has no greater value than any others.
Ratings have already really been covered well in the questions below. Color labels can further help you add metadata to images if ratings are not enough, what particular use case you may find them useful for really depends on what images you have.
See the following for more detailed information already documented here:
I generally make a color pass and use the indicators of color touchup to tell me which I have altered so far. Then I make a rating pass where I use reject and rating flags to determine the quality of each shot. From there, I may use a color tag to flag photos for particular extended editing, though I vary the colors from instance to instance based on what kinds of work I'm expecting to do on the photos.
Keywords can also be very helpful for categorizing your images so that you can quickly select images out based on subject matter. I've also occasionally used keywords to indicate particular touch ups that have been done to an image if I want to keep track of what edits have been made to each, particularly if editing in Photoshop or some other external tool.