Closer you set them to the strings, the more output and usually often sustain. Too close and you will be bottoming out the strings on the poles (unless they are covered pickups) when playing. The magnetic pull can screw with the intonation of your guitar if too close.
Generally, you might want to adjust the bridge pickup closer to the strings than the other two, with the rhythm lower than the middle. It's a volume game, some like to balance the output evenly, others don't (me). I usually have the rhythm pickup lower on tele's/strats though. It really depends on the sound your after. Not rocket science though, play around with the heights until you get the sound you like.
If your unfamiliar with setting intonation on guitars, I'd recommend bringing it to a guitar tech for a setup. Won't cost mega-bucks, and your guitar will play and sound much better if it hasn't been setup in awhile (or ever).