Can someone let me know the basic setup of Compound Templating.Is there some reference document provided by Tridion.
3 Answers
You can find all about Tridion's templating model in this documentation topic (login required):

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There is a very good training available for it, please see:
The Modular Templating & Dreamweaver and MS.NET Templating trainings are the one you are looking for.

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Some common points to be remembered, off course very generic but still important.
In schema naming Use lower casing on element names and replace spaces by underscore(_).
Use Genric text with Editors Terms of the description text
To show constraints with particular schema fields one can think of Schema facets
Always create TBB with the purpose of re-usability.
In Dreamweaver templates always use RenderField instead of the
@@Component.FieldName@@
syntax to ensure that the SiteEdit feature always works.During linking don't forget to use “textonfail” attribute.
Make sure parameter names don’t clash with items.
You can resuse TBBs for different purpose with help of different parameter schemas.
Many more generic points could be keep in mind and always follow as Best Practices to avoid rework. I hope the community can extend the list.