Magento natively provides two powerful features for applying promotions.

• Catalog Price Rules
• Shopping Cart Price Rules

Catalog Price Rules

Catalog price rules are used to apply discounts (fixed or %) to products and take effect on catalog pages (i.e. before items are even added to a cart).  This is the type of promotion one might use to put one or more categories of items on sale for a fixed period of time.  The applied discount can be configured to use the original price or the sale price of an item.

This KB article explains catalog price rules and how to use them:
http://www.magentocommerce.com/knowledge-base/entry/what-are-catalog-price-rules-and-how-do-i-use-them

Shopping Cart Price Rules

Shopping Cart Price rules are used to apply discounts to specific items, based on the contents of a customer cart.  This is also where coupons, BOGO and free shipping promotions are defined.

The KB article explains shopping cart price rules and how to use them:
http://www.magentocommerce.com/knowledge-base/entry/what-are-shopping-cart-price-rules-and-how-do-i-use-them

Below is a very good article with examples for setting up various “sales” (e.g. % off discounts, BOGO, Free Shipping, etc…) :
http://www.magentocommerce.com/wiki/3_-_store_setup_and_management/shopping-cart-price-rule-recipes