The reason we use thermal compound is because two metallic surfaces are never perfectly smooth: there are always microscopic pits and bumps in the surface. So, when you push the CPU and the Heatsink together, there would be small microscopic air voids in between the two surfaces, and air is pretty poor at transferring heat. That's why we use thermal compound: it fills those microscopic
However, ultimately copper will always be a better conductor of heat. Thus you want to maximize the amount of direct metal contact, and apply JUST enough thermal compound to fill any voids between the two surfaces. Using two much will create a layer of thermal grease between the two, and (yes) will deliver worse performance. It can also cause the compound to seep out onto other components (also not good).
Here's a decent video guide, it's a little long, but they give some good advice:http://www.youtube.com/watch?v=fRRWbQUqW1Y&NR=1&feature=fvwp
Some people will tell you to smear the dot around a bit with a business card to insure more even coverage. In any event, less is more.