How should graphics be set in game?

Your graphics need to be set to whatever your graphics card can handle and that ensure that your game runs smoothly. If you have a great graphics card and lots of RAM, you can maximise all settings, run at max resolution and maybe even turn on edge smoothing. If you don't have a high end graphics card and oodles of RAM, you probably need to run at lower settings.

Even if you tell us what your graphics card is and how much RAM you have, it's hard for us to know how your game runs with various settings because we are not there, looking over your shoulder. There is no "supposed to" setting for this game. It all depends on your machine and whether you want to deal with lag while playing or not.

Having said that, I have a 512MB graphics card, 1GB RAM and a 3GHz CPU. I run with medium shadows, max sim and object details, snow on ground, I hate the movies so I turn them off but they run smoothly for me, and my edge smoothing is on minimum when playing a regular game, but in a testing game with no CC I can turn on edge smoothing because there is no CC. Having said that - houses like from a particular creator on this site, ones that contain oodles of high poly CC make my game grind to a halt and are unplayable. I play mostly maxis match and I'm careful about what CC I put into my game and poly counts on items and hair, etc. If you throw anything you like the look of into your game, you may need to lower your settings even if your equipment is better than mine, because high poly items will just make your game grind to a halt. I have all EPs and SPs apart from the Holiday Stuff Pack.