For me, the easiest test is to place the bike on the ground, apply the front brake enough to lock that wheel, then rock the bike forward and backward. There shouldn't be any discernible play or looseness at the headset. Sometimes there is a little play in the front brake which is a different issue but can confuse things. You can place a finger where the headset races meet to feel specifically for headset play.

I don't worry about being able to feel just a bit of drag from the headset when the bike is on the stand and I am turning the handlebars. The headset bearing isn't being asked to spin freely like a hub bearing, so that little bit of drag doesn't matter. You do want the front wheel to flop freely to one side or the other as you lean the bike.

When adjusting the headset on the stand, I tend to adjust too loose, and then have to tighten a little bit after the "rocking" test. The need for such a trial and error process always reminds me that I'm a shadetree, not professional, mechanic.