I leave mine set on Underwater color balance (little fish icon) -- A=0, G=-1, and Vivid color mode. EV at -0.3 or 0.7... digital's like old slide film, you want to underexpose a bit to get rich saturated color.
I keep my Custom mode set to Program, with Monotone color mode (Black-and-white)... sometimes I like to 'see' in B&W.
If using Aperture mode, I like f/5.6 as a place where the lens is very sharp with tremendous depth-of-field. And f/2.5, at full 112mm tele, if you want to blur the background. Really bright day? Use the ND filter to stop overexposure. Shutter speed -- at least 1/125 sec to stop motion. Or, 1/25 sec if you want to get a controlled blur, like when panning with a moving car or runner.
Confused about all this? Use Program mode, with the ISO at 100. Pictures in the dark, without flash? You can go up to ISO 640, maybe ISO 800, but not more, or you will get blotchy pictures (chroma noise). With the lens at f/2 and ISO 640, you'll be amazed at how you can get almost any nighttime image.
Use spot focus. Meter for the highlights, or close to them... like the sky to the left or right of the sun at sunset.
Convenience -- keep the XZ-1 in your left shirt pocket. Keep a charged spare battery and 52mm polarizing filter in your right shirt pocket (you can hold it over the lens to knock out reflections. For bright days, when its hard to see the screen, you also carry a small older Pen VF-1 optical viewfinder that works OK with the lens at the startup 28mm setting. And carry a beanbag in a pants pocket to put the camera on at night, and use the self timer at 12 sec to take the picture, like for a nightscape without too much subject movement.
Post-processing ('developing') -- Corel After Shot Pro is a very good inexpensive program with enough features to keep you busy for a long time.
RAW vs JPG -- the XZ-1 JPGs are very good. But every now and then, like in some weird flourescent light or mixed-light situation, switch it from LF (best JPGs) to LF + RAW. You can learn about RAW in your Olympus software, or in After Shot Pro.
Secret -- focus lock: normally, you hold the shutter button halfway down and wait til you see the little green box and then take the picture. The green box means that the XZ-1 has locked both focus and exposure on that spot. But waht if you want to lock the focus on the spot, but get the exposure somewhere else?
Here's how. Use the back-wheel left arrow to put the focus box in the center of the screen (always best with spot focus). Then - you can put the XZ-1 on SCN > Underwater-Wide and then press the down arrow on the back wheel, and it will lock the focus on whatever's in the center of the screen. With the focus locked, you can move the camera and get an exposure from somewhere else in the scene. The focus lock will hold until you turn off the camera... or until you press the down arrow again to release the focus lock.
Flash -- in Shutter, Aperture, or Manual mode, you can adjust the flash power. Try 1/64 power to add a flick of light, of sparkle, to your portraits or closeups.
Image quality -- for almost all pictures, your XZ-1 takes images as good as any other camera. There are a very few situations where much more expensive DSLRs are better. But not often, and not worth the bother of carting one around. How to 'improve' a picture? The old Life magazine adage -- crop, then crop it again. Your XZ-1's 10 megapixels gives you plenty of room to crop to the most visually strong image possible.
Hope this helps... enjoy!