Oliver Villar Diz from BlendTuts with a great overview of how normal maps work in general and goes through the baking process of creating normal maps in Blender. Check out BlendTuts for more great tutorials and tips for Blender.
Oliver Villar Diz writes: In this tutorial, I start with a quick explanation about how normal maps work and how the baking process creates the normal map. Then we’ll see a practical exercise on how to bake the detail from a high resolution mesh into a single polygon mesh, simulating all the detail using the normal map. Of course, we’ll also take a look at how to set up a normal map in order to see it on the realtime 3DView. Then, I’ll go forward and show you how to bake other types of textures, in this case an Ambient Oclussion map.