The test I use is to sit on the bike leaning against a wall so I am almost upright, wearing only socks. I place my heels on the pedal spindles. There is a very definite seat height where I can either lock my knee or bend it keeping contact with the pedal and not rocking my hips.
I like a lowish seat. Some do this test wearing their cycling shoes. I don't claim this is perfect for all, but it is right for me and it allows me to set up any bike with any seat to the right seat height quickly.
For me, a straight knee is a seat way too high. But again, I like a seat lower than many. I started much higher, brought it down at the suggestion of the club vets when I started racing. As I rode years of long miles, I evolved to the test above.
Ben