1. Launch instance – choose a package of software you want to run (eg rails, mogrel, mysql). This is where all your environment sits. There are many predefined images you can launch into your instance. There are even packages which include monitoring tools, memcache and so on. Anytime you alter and install and new software you will need to create AMI (Amazon Machine Image). This will be your backup just in case something goes wrong with your instance. You will be able to launch the latest configuration form this image. If you do not do it you will lose the whole server configuration and all the stuff you have installed.
2. Launch Volume and attached it to your instance. This is the place where your data will sit. Your application files, database and so on. You need to mount the volume into the instance after you attach it.
yes | mkfs -t ext3 /dev/sdh mkdir /mnt/data-store mount /dev/sdh /mnt/data-store
You should be regularly creating snapshots of this volume. Again. If something goes wrong you can launch all your data from latest snapshot. The snapshots are stored on Amazon S3 servers. Probably the cheapest backup options out there.
3. Alocate your Elastic IP address. This provide you with huge flexibility of switching IP address without a need of waiting for DNS records to change.
4. Use your keypair to ssh to your instance.
ssh -i yourkey.pem root@yourinstancename.compute-1.amazonaws.com
Note: I went for reserved instance. It requires payment ahead for 1 or 3 years but it reduces the cost by 30 % for monthly payments.