Originally Posted by
lobstermike
It looks to me that you would have to loosen the large nut at the top, loosen it enough so that you can lift the cable hanger, so the serated teeth part separates enough so they are not touching, then tighten the bottom nut by hand, clockwise. Apply the front brake and rock the bike backwards and forwards, tightening the bottom nut by hand until the clunking movement goes away, then push the cable hanger back down into place, and finally tighten the topmost nut down, making sure the steering moves freely. Thats it. There could be a chance that the bearings are worn out though.
Well, that's pretty close - friendly edit below.
Loosen the large nut at the top enough so that you can lift the cable hanger, so the serated teeth part separates enough so they are not touching, then tighten the bottom nut by hand, clockwise, until you meet resistance. Back off (c-clockwise) 1/4 turn or less. Push the cable hanger back down into place, and finally tighten the topmost nut down.
The steering should move relatively freely but you should not feel a "clunk" when you apply the front brake and rock the bike forward and back. If it's too tight or clunks (too loose) just redo the procedure and move the nut 1/8 turn tighter or looser. If you can't get rid of the clunk without the bearing being tight then the bearings are worn/dirty or the bottom race that is mounted on the fork is no longer a tight press-fit.