Jeff Atwood has a good writeup on creating user friendly 404 pages.
We understand what 404 means: Page Not Found. But the average internet user has no idea what 404 means or what to do about it. To them, it's yet another unintelligible error message from the computer. Most 404 pages are unvarnished geek-speak.
In five simple points he explains the intricacies of a user-friendly custom 404 page. He also informs about a site dedicating to documenting funny 404 pages.
- Drop the 404
- Automatically notify you of the 404
- Try to find what the user was looking for and provide links to possible matches
- Present links to the most popular or most recent items
- Keep the 404 page simple
For a detailed description read the full post.