Here are some resources to check out that have covered this well:
* Rand wrote a great post (http://moz.com/rand/understanding-stock-options-at-startups-...)
* Solid overview: http://www.danshapiro.com/blog/2010/11/how-much-are-startup-...
* This is a good book that doesn't get enough love (http://www.amazon.com/Engineers-Silicon-Valley-Startups-eboo...)
* Good high-level notes about equity in startups (part of an incredible series, read it all if you can - http://blakemasters.com/post/21742864570/peter-thiels-cs183-...)
* Venture Hacks on the "Option Pool Shuffle": http://venturehacks.com/articles/option-pool-shuffle