Okay, there is a lot of reading to do on this topic, but also a lot of misinformation on the web. The short version is that fuel takes time to burn, think of a fire burning something up more so than an explosion. To burn all the fuel completely is the goal, and that’s the way that your engine will run most effectively and efficiently. So, given that the fire takes a little while to burn, you have to ignite it with some time to spare before the piston is at the top of the travel. This is “advance”. As the engine speed increases, the time the piston takes to complete the travel is less, so the ignition has to happen sooner, that’s where the mechanical advance of the distributor comes in. The centrifugal force of the faster engine speed moves a set of weights outward and results in the spark firing sooner. At full speed, stock distributors will advance to almost 40* BTDC. This comes from the base timing (what you set with the timing light) plus the distributor’s built in advance potential. You have to set the base timing with regard to the total timing, as it is affected directly by it. The reason you hear about people increasing the base timing today is that modern gasoline is very different than it was in the 60s, and it takes longer to burn than the old stuff. So the old specs just don’t work for peak performance anymore. Most guys set initial timing around 12* BTDC on their small-block Fords, that seems to be the sweet spot for today’s pump gas. Cars will generally idle better with even more advance than that, but if you go too high, the total timing at high RPMs will be too much, and the engine may experience knocking. This can be played with by using the vacuum advance unit, but that’s a whole other topic.
Also, in general terms, retarded timing equals running hotter, more advanced will run cooler. Has to do with when the combustion is happening relative to the stroke. Really late timing will make your exhaust manifolds turn red hot—not good.