Originally Posted by Kimmo

First, position the seat as high as you can get it without your hips rocking. Touching the ground isn't relevant; you slide off the front of the seat and/or tip the bike over to put a foot down. The fore/aft adjustment should put the bottom of your kneecap directly over the pedal spindle.

If your bars are too high you won't make much power and you'll catch a lot of breeze; that's another factor. If your bars are low enough, you want your back to do most of its bending lower down so your upper back is straight rather than hunched over, and with the weight of your torso cantilevered over your knees via your glutes, your arms should be quite relaxed when you're pedalling as your glutes will be holding you up.

As for the actual pedal stroke, you're most efficient around 90rpm - close ratios are good because this a peaky little powerband without much on either side. So you want to stick close to 90... and teach your muscles to spin. A perfectly smooth power delivery is ideal, but impossible. The best you can aim for is to pedal in circles, rather than just stomping down on the front of each stroke. Work on one part of the stroke at a time, 'scraping mud' through the bottom, pulling up on the back stroke, and 'snapping' your knee up over the top (that last is a good way to pick up your cadence if you're bogging down). Once you've practised these techniques at making power in other parts of the stroke for a while, try to put them together by kinda 'floating' your feet in circles.

When it comes together, you might notice it suddenly seem a bit easier as your leg muscles stop working against each other and you make a more consistent power output... you need to build up the muscle memory first, but once you've mastered the easy spin it just becomes a matter of breathing enough to power it (90rpm is close to the threshold of sustainability; much faster and you're anaerobic).