Magnetic declination is the difference (in degrees) between the direction the compass needle points and true north. Magnetic Declination depends on your location. You can look up the declination for your area at: http://www.ngdc.noaa.gov/seg/geomag/jsp/Declination.jsp.
Some compasses allow the declination to be set -- if yours does, then just set your local declination and you are good to go. If not, then on each compass reading, you must offset the compass needle from the true north mark on the compass by the declination angle. For example, if you live in Bozeman, MT your declination is about 14 deg east. To take a true compass bearing, rotate the compass until the needle points 14 degrees east of north on the compass bearing scale. If your declination were 14 west, you would rotate the compass until the needle was 14 degrees west of north on the bearing scale (it would point to 360 -14 = 346).