Since the main purpose of the compound is to provide a heat transfer the way that it's intended then you have to fill all the scratches, pits and grooves so that there is a completely flat surface and no air pockets. Air pockets provide areas where the heat can intensify and spike instead of being transferred to the heat sink as a stable temp.
The methods, and there are many, of spreading the thermal compound is very important and the objective is to have a very thin coating of the compound. Almost transparent.
1. Before applying any thermal compound the top of the CPU lid and the bottom of the heat sink should be cleaned with Isopropyl alcohol or a specialized cleaner with a Q-Tip or soft cotton cloth.
2. One of the most widely used methods of spreading the compound is to place a small pea sized amount of it in the center of the CPU and place the heat sink on the CPU and with a slight twisting motion while pressing down let the weight and pressure of the motion spread the compound. It doesn't end up making the compound spread out to the edges of the CPU lid but it does cover the most important part , the center. (You don't have to press down very hard)
3. Then you can attach the heat sink with the provided screws, anytime the heat sink is removed re-applying the thermal compound is required
4. If your going to manually spread it by hand then you want to use a piece of thin plastic like a credit card or paddle spreader that some manufacturers will make available just for this purpose. As was stated earlier getting a very thin coating is the objective so don't rush it and spend some time making it a very thin layer.
Now since there are many ways to apply the compound, small pea sized amount, an X, a straight line, three straight lines, several dots , squiggly lines or a circle. There is something that you need to prevent and that is air bubbles in the compound, it's something that's hard to prevent and it will cause the temps to be a bit higher then a properly spread compound with less air bubbles.
The pea sized amount in the center and the twisting pressing motion has been found to have less air bubbles then the other methods.
There is also the pre-applied thermal material that comes already applied to the base of a heat sink that has a protective plastic sheet that is removed before attaching to the top of the CPU. This type of application does not need any additional thermal compound and eliminates the need for spreading. However once this heat sink is attached if it is ever removed for any reason you will have to clean the pre-applied thermal compound off and apply new material.
Along with the correct way to apply thermal compound is the incorrect way and if you do not apply it correctly it will not work correctly. Too much will act as an insulator.
Always make sure to clean the surfaces that the thermal compound will be applied to and if manually spreading take the time to do it right or you will be doing it over.