[Lhundulinwen]

As for drafts, I generally edit as I go along, as far as grammar and sentence structure. But when I get done with a piece, I set down and read the entire thing out loud. I ask myself a few questions as I go- Would this character say that? What is his dialect and accent? Can a reader 'hear' my character's way of speaking? Is there clues along the way about the outcome of the story? Are they spaced out? Does the plot have a climax? Is the conflict strong enough?
It takes a while to rewrite the whole project usually, and your project should shrink. I allways take out the irrelevent descriptions, the overwriting, etc. For every ten pages you may end up with 5 - 9 pages. But then again, you may find the need for an entire new character (it has happened before) and your story may grow.
I generally end up doing three to four drafts. It helps to work on something else for a week or two between edits. Some people have more drafts, and others can't bear to cut anything. Its best to find a happy median in between those extremes. You'll know when your on your last draft. It'll just seem as if you won't ever do better, or that the characters have reached "ripeness". Then its time to think about publishing, or not. It all depends on you.
If you want more information on publishing and writing in general, try The Writer magazine, and a book with the dragon from the Hobbit (I think it is anyway) called Writing Sci-Fi and Fantasy. (Please correct me if that's not the whole title!). And two good books on general writing is Escape into the Open by Elizabeth Berg and a book that's shaped like a block, The Writer's Block.