float is the amount of "wiggle room" your foot is allowed once it is positioned/secured on the pedal
Yep, that's what I've heard. I've never heard, however, that too much float causes a problem, but I have heard that a fixed position that isn't right will cause problem.

I have a very unscientific method for adjusting my cleats. When you're clipped in, twist your foot in and out while pedalling. How does your knee feel? Does it think that if you could just twist a tad more to the right (or left, be more forward, be more back) that it would be happier? If so, get out the wrench and adjust the pedal so your knee's happy spot is in the neutral position of the pedal.

I find that my foot position is a bit splayed (?term--basically, not pigeon-toed). I start with the cleats looking neutral and then, invariably find I need to tweak them until my heel almost touches the crank. Obviously, you'll be different, but you need to play with the position until you find your happy spot.