You are really asking about two different things here.
Mic placement.
and
Gain structure.
Indeed they go hand in hand, but each has it's own set of "rules".
Mic placement:
In above posts, it was described that closer micing means less room noise introduced into the sound on tape. Farther away means more room sound going to tape. Which you decide to use depends on the type of "space" you want the recorded track to have. If a more "direct" sound is sought, close mic. If a more "open" sound is sought, distance mic.
There is also a difference created by the quality of the transformer, tube, or circuit built into the mic that will change the sound between close and distance micing. Each mic will suggest what it really likes. Also, the SPL (sound pressure level) the mic in capable of handling comes into play, and how well the tranformer, tube, or circuit in the mic deals with overloading it. I know that certain mics actually handle overloading in a more ear friendly way then others.
The rule you follow about mic placement is USE YOUR EARS to get the "depth" of sound you want on that track, and pay little attention to gain at first (except that you are not overloading the preamp.....yet...

)
Gain structure:
I like reading posts where people think just because a red light lit up that the circuit distorted. I tells me who reads manuals and who doesn't, and who understands the role of distortion in circuits and who doesn't. The whole idea of "never distort or have a red light lit up" is absurd!!!
Follow THIS rule about setting gain. If you HEAR distortion, then it happened. If DIDN'T hear distortion, it didn't happen. Easy enough.
Most every "peak indicator" on any piece of gear, except on tape machine inputs is set to go off anywhere between -4 and -8 dB of the ONSET of distortion (if the manual of your gear doesn't tell you, call their tech support and find out. DON'T accept an answer of "it is not set below" because they all are!). The peak indicator light going on DOESN'T mean that you reached the level of distorting the input of something because it went on, although it COULD if you are well over the -4 to -8 setting it was set at and technically are starting to distort. Think of that light as a friendly little reminder that you are close to it!
Now that we know that peak indicators doesn't necessarily mean you have started to distort, let's move on to the decision if you SHOULD introduce distortion into the sound or not.
In a digital device, definately DON'T introduce distortion, UNLESS that nasty digital distortion sound is what you are after. Let me tell you though that I have heard places were this actually sounds "good" per se. I recorded a guitar solo on a ADAT where we recorded way too hot. That couple dB over digital 0 on the meters just provided a sound that was cool for the solo in that particular song. I have heard of other engineers doing this vary thing too. So while it is not per se "standard practice" and should mostly be avoided, DON'T be afraid to experiment with it!!!
Analog devices are a whole different story concerning distorting inputs.
A trick I use when using solid state preamps on drummers that hit inconsistently is to actually make the preamp distort a bit on the louder hits. Distortion clips the sine wave, which mean that the sound does not per se get louder (actually the sound CAN indeed be percieved as getting louder even in a clipping stage. An understanding of the Fletcher/Munson relative loudness curves will help you understand why, also, the more in clipping it is, the louder is will seem. The dynamics will be gone, and you will hear a lot of background garbage too, but it is louder!!!

). Distortion in analog circuits is a gradual effect, meaning, that the more your distort, the more you will actually hear it. Refer to the above about "hearing distortion". Analog cicuits are different mostly in that the level of distortion "increases" as the input get's hotter. But, just because you have distortion introduced doesnt' necessarily mean that is a bad thing. It might actually sound very cool. Again, EXPERIMENT.
Better analog circuits will handle distortion better then cheap analog circuits, but you should play around with your units to see how loud they can actually get before you HEAR distortion, and ascertain whether low level distortion (or high level....

) sounds good on your unit or not. It may or may not depending upon the type of sound you want going to tape or to the next gain stage.
DON'T be fooled into the thinking that distortion is bad!!! Distortion is one of the best tricks in the book on helping achieve warm sounding recordings with the best sound to noise ratios. There are other tricks available to alleviate background noise cause by hot gain levels. Pretty much, anytime you touch a analog eq or compressor, you are introducing at least a small amount of distortion to the sound, so, obviously distortion is not such a bad thing after all. The AMOUNT of distortion is your main concern really, because distortion exists everywhere in audio, whether you like it or not. A good understanding of gain structure puts YOU in control of how much distortion you want.
Hope this helps.
Ed