By default, LaTeX sectioning commands make the chapter or section title available for use by page headers and the like. Page headers operate in a rather constrained area, and it's common for titles too be too big to fit: the LaTeX sectioning commands therefore take an optional argument:
\section[short title]{full title}
If the <short title> is present, it is used both for the table of
contents and for the page heading: the usual answer to people who
complain about the size of the title that's gone in to the running
head, is to suggest that they the optional argument.
However, using the same text for the table of contents as for the running head may also be unsatisfactory: if your chapter titles are seriously long (like those of a Victorian novel), a valid and rational scheme is to have a shortened table of contents entry, and a really terse entry in the running head.
One of the problems is the tendency of page headings to be set in
capitals; so why not set headings as written for "ordinary" reading?
It's not possible to do so with unmodified LaTeX, but the
fancyhdr package provides a command \nouppercase for use
in its header (and footer) lines to suppress LaTeX's uppercasing
tendencies. Classes in the KOMA-script bundle don't uppercase
in the first place.
In fact, the sectioning commands use 'mark' commands to pass
information to the page headers. For example, \chapter uses
\chaptermark, \section uses \sectionmark, and so on. With
this knowledge, one can achieve a three-layer structure for chapters:
\chapter[middling version]{verbose version}
\chaptermark{terse version}
which should supply the needs of every taste.
Chapters, however, have it easy: hardly any book design puts a page
header on a chapter start page. In the case of sections, one has
typically to take account of the nature of the \*mark commands:
the thing that goes in the heading is the first mark on the page (or,
failing any mark, the last mark on any previous page). As a result
the recipe for sections is more tiresome:
\section[middling version]{verbose version%
\sectionmark{terse version}}
\sectionmark{terse version}
(the first \sectionmark deals with the header of the page the
\section command falls on, and the second deal with subsequent
pages; note that here, you need the optional argument to \section,
even if "middling version" is in fact the same text as
"long version".)
A similar arrangement is necessary even for chapters if the class you're using is odd enough that it puts a page header on a chapter's opening page.
Note that the titlesec package manages the running heads in a completely different fashion; users of that package should refer to the documentation.
The memoir class avoids all the silliness by providing an extra optional argument for chapter and sectioning commands, for example:
\section[middling version][terse version]{verbose version}
As a result, it is always possible for users of memoir to
tailor the header text to fit, with very little trouble.
This question on the Web: http://www.tex.ac.uk/cgi-bin/texfaq2html?label=runheadtoobig