The three basic animation cycles: stand, walk, and run should be positioned so that the model's feet stay on or above the ground plane set by the model's first frame (most likely 'stand0'). If any part of the model goes beneath the plane in these animation cycles it will appear to penetrate the ground in the game. If the feet do not touch the ground plane the model will have the effect of "walking on air".
The stand animation cycle is the first animation cycle that model is shown in and the default cycle it enters when no other outside force is effecting it. You can use a single frame for this but it may look more lifelike for your model to 'shift' its weight from side to side a little, looks around, and/or bounces slightly.
The walk cycle is called when the player is moving at a speed greater than zero and less than the 'walk_or_run' value and is not being overridden by another state (like duck, jump, or swim). To make the animation look correct the model's feet should come down to touch the ground plane on each step.
The run cycle is called when the player is moving at a speed greater than the 'walk_or_run' value and is not being overridden by another state. It should be positioned in the same way as walk.