Step 1) Permalinks
The default URLs for WordPress lack the context that aids search engine rankings; the URL should play a role in describing what the page is about.
For example, out of the box the page address for the About page is /?page_id=2
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So to start we need to change how WordPress shows the URLs on the website. This is done by going to the “Settings” menu and choosing “Permalinks”.
Once you are there go to the “Custom” option for permalinks and enter one of the following:
/%year%/%postname%/
if you want WordPress URLs always to look like this:
http://wordpressseo.ca/2009/my-bmw-article/
or use (my preference)
/%year%/%category%/%postname%/
if you want WordPress Pages to look like this
http://wordpressseo.ca/2009/bmw/bmw-700-series-review/
In this case I went with my preference which is /%year%/%category%/%postname%/ because I like the added relevance a category sub directory adds to my URLs for WordPress Posts.

After implementing this fix the URL for the About page looks MUCH better: /about/
And what does a blog posting look like with the category in the permalink? Here is an example:
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There, now that we have the Permalinks setup properly it is time to install the Redirection plugin (by John Godley at UrbanGiraffe) which will help us ensure no links are broken if you ever need to change a permalink in the future (or any old permalink structures on your site). The Redirection plugin is easy to get a hold of and requires no pre-configuration although it does have an interface that will allow you to add 301 redirects manually if need be.
After installing the Redirection plugin we need to move on to the HeadSpace 2 SEO plugin

I made an update to this page today to recommend adding the /%year%/ to all permalinks. Other numerical fields can go there but whatever is used must be put at the beginning of the permalink.
Sorry for the change everyone but I am constantly learning and after some trial and error I discovered that it is indeed better for the site speed to begin the permalink with a numbered field.
Try /%postid%/ if you wish