The catcher gives signs to the pitcher and the team for what defense to play. This may be a specific bunt defense or 1st and 3rd defense or a pickoff play. All fielders should watch the catcher before each pitch to pick up any signs.
The following is a good video on being the proper position for giving signs and how to give them. One thing not mentioned in the video is to keep your fingers at cup level -- if you drop them too low, the opposing team may pick them up.
With no runners on base, flash one sign. If the hitter looks back to try and pick up the signs, move to the signs that you use when runners are on base.
Runners on base will try to pick up the signs for the pitcher. Obviously, a runner on second has the best view of the signs, but a runner a few steps off first may also be able to see the signs. To combat this, have different methods of delivering signs. Remember to keep it simple and have a few different methods for delivering signs. For example, flash three or four signs with the second sign as the pitch. Or, have one sign as the indicator and the next sign given after that as the pitch. If three fingers is the indicator, and the next sign delivered is the index finger, a fastball is the pitch. By having a couple of simple methods to deliver the signs you can quickly change methods if you feel the other team has picked them up.
Normally, the first sign given is the defensive sign. The coach relays this sign to the catcher and then the catcher gives it to the team. Have a default defense in place for each situation so the catcher doesn't have to give a defensive sign each time a runner reaches base or the on base situation changes. The defensive sign cannot be given in the same manner as the catcher uses for the pitch. All players must be able to see the sign being given.
EXAMPLE: Let's say with a man on second, you have two bunt defensive plays and one pickoff play that the coach can call. You may determine that going to your mask with your throwing hand is the first play, chest protector is the second play, and your right knee is the pickoff. Then all you need is an indicator (say wiping the ground with your throwing hand) to let the defense know a play is being called. You can add other things to make it difficult for the opposing team to pick the signs. Maybe it's the second sign after the indicator is the play.