RAM usage at the command line
If you just want to play with your buddies and not the whole wide Internet, it's best to enable the server whitelist setting and add your buddies' Minecraft usernames to it.
The first thing you'll likely want to tweak is the amount of RAM allocated to Minecraft. It's a memory-hungry application and will, over time, gobble up as much RAM as you can throw at it; most will be used to keep chunks of terrain cached in memory. This is extremely handy if you have a busy server with a dozen or more players online all at once, since it lowers the amount of terrain data Minecraft has to pull up from disk, but it might also be a waste of memory on a lightly populated server.
As a general rule of thumb, start with 1GB and consider allocating another half a gigabyte per regular player. If you expect to have four folks regularly playing on your server, 2-3 gigabytes should be plenty.
RAM allocation is the easiest tweak to make, as it's specified in the Java command used to launch Minecraft with the -Xms and -Xmx arguments. Xms sets the starting RAM allocation and Xmx sets the maximum RAM allocation.
Options in the server.properties file
The main Minecraft configuration file is server.properties, located in the same directory as the Minecraft server .jar or .exe. Most of the entries here can be left alone, but you might want to modify a few to taste.
level-name: The displayed name of your Minecraft map. Defaults to "world," which is uncreative and boring. You will almost certainly want to change it to something more exciting.
server-port: The TCP port on which the server listens for clients. This is the port number everyone else will have to use to connect to your server. Defaults to "25565," which you may or may not want to change.
spawn-npcs: Enables or disables non-player characters like villagers. Defaults to "true," but disabling it can help with lag and memory usage.
spawn-animals: Enables or disables animals, like sheep, pigs, and cows. Defaults to "true," but disabling it can help with lag and memory usage.
spawn-monsters: Enables or disables monsters, like skeletons and zombies. Defaults to "true," but disabling it can help with lag and memory usage; also might be worth turning off if you don't want to have to fight things.
white-list: Enables the use of a player whitelist, which allows only approved players to connect and play. Defaults to "disabled," but if you're going to run a private or semi-private server, you must set this to "enabled." The whitelist itself is stored in white-list.txt and can be directly edited or modified with an in-game console command.
pvp - Enables or disables player versus player mode. Defaults to "true." If you don't want players to be able to directly damage each other, set this to "false." Note that whether set to true or false, players can always indirectly harm each other with explosions, lava, and other environmental hazards.
gamemode: Controls whether the game is set to Survival, Creative, or Adventure. Defaults to "0," which is traditional Survival mode, where players must gather resources and build things. Also available is "1," Creative mode, where players can fly around and summon unlimited building materials and are immune to damage; and "2," Adventure mode, which is broken and doesn't really work correctly.
For a comprehensive description of all of the other options in the configuration file, check out the Minecraft wiki.