Permalinks are the URLs to the individual posts. The URL to each post should be permanent, and never change — hence permalink. When you set up a wordpress blog the default permalink will look something like this http://example.com/?p=N, where N is the post id. WordPress catagories Default permlink as “Ugly”. However WordPress offers you the ability to create a custom URL structure for your permalinks and archives. This can improve the aesthetics, usability, and forward-compatibility of your links.
You can use the All in One SEO Pack, wordpress plugin which will optimize your WordPress blog for Search Engines.
Search Engine Optimisation (SEO) using Permalinks
Including the relevant keywords in the URL will improve your page SEO(search engine optimization) as oposed to using numbers as in default wordpress permalink. In WordPress, you can set how your Permalinks look and which will have a significant effect on your site’s SEO. If you go to Settings -> Permalinks in WordPress(version 2.7) you can control the Permalinks structure.
Which Permalink Structure Is the Best ?
WordPress default permalinks is “UGLY”, so Permalinks with post-name is always good.
Date with Post name
Most of the popular blogs uses custom Permalink structure as year/month/day/post-name. Which I personally don’t like because of the date part included in url.
Category with Post Name
This blog ThePicky.com uses the custom Permalink structure /category/post-name/ . This will tell the user what category this post belongs along with title of your post. This will give you the maximum SEO benefit.
This structure is not good if you rename your category often or re-categorize your blog altogether. If you do so with a established blog which has been indexed by google and other search engine, then users wont be able to land on the proper pages.
Only Post Name
Another good permalink structure is to use /postname/, like this parentinghopes.com
Post name with post ID
According to the Codex page on Permalinks, only postname may cause you problems “If you use postname as the only element in your permalinks to create a structure such as example.com/post-title, the rewrite rules may make it impossible to access pages such as your stylesheet (which has a similar format) or the /wp-admin/ folder. It’s best to include some numeric data (e.g. the post ID or date) in the permalink to prevent this from happening.”
So, include %postname%-%post_id% to avoid above issues.