Guilds are your home away from home, your buddies, your employment agency, and a general all-around pain in the behind. But they are a necessary pain if you want to enjoy their benefits. Which guilds you join depends on you and your skills. The Thieves Guild and Dark Brotherhood are by invitation only, but you ask to join the others. If your skills meet the minimum requirements, you're in. Each Guild has certain benefits, but their rank structures work the same.
Each Guild requires minimum levels in 2 skills in order to join. If you have not selected the skills required by the guild you want to join as Primary, Major, or Minor skills, you can develop it to the minimum level and then join. As a general rule of thumb, if one of the required skills is a Primary or Major skill, you're pretty much a shoe-in for membership. If you have none of the skills as Primary or Major, but some are Minor, membership will depend on how you distribute your bonus points and develop your skills early in the game. If none of the required skills are in your Primary, Major or Minor slots, you need to plan on developing the skills before you can join.
For non-spell-casters who want to be able to join the Mages Guild, the easiest way to develop the necessary skills is to buy a "Bouyancy" spell. It's a very cheap spell to cast, even for those with very few spell points and very low skill levels. Cast it, rest, cast it, rest, cast it, rest, ... . Eventually your skill in that school will reach the point where you qualify for membership in the guild.
For non-thieves, the quickest skill to develop is pickpocketing. Travel the dungeons in "Steal" mode and pickpocket everything you come across.
Advancement within the guilds requires development of your skills and increasing your reputation. You increase your reputation with the guilds by performing quests for them. More about quests at a later point, but each successful quest will increase your reputation with that guild by 5. On the other hand, each failed quest drops your reputation by 2. It is possible to be kicked out of a guild should your reputation drop far enough.
There are quests which set you at odds with your guild(s). Successful completion of these quests can drop your rep with the guild (and all of its affiliated factions) anywhere from a couple of points to 20 or more points. This is especially true of the Thieves and Dark Brotherhood. Watch your rep closely with these two guilds or you may find yourself out in the cold. If you are expelled from a guild, you can rejoin as soon as your rep zeroes out. This may take a few months or the completion of a few non-member quests.
Progression within the guild is not linear. You can skip ranks. Lets suppose you perform 15 successful quests for the Thieves Guild (this gives you a 75 reputation), but your skills are only sufficient to warrant your being awarded rank 4. If you subsequently develop your skills to the point where you qualify for rank 7 (71 in one and 32 in another skill), the next time you talk to someone at the Thieves Guild you will be promoted to rank 7 without having to go through ranks 5 and 6. You can only receive one promotion every 28 days, though, no matter how high you develop your skills and reputation. Should your rep or skills drop below the minimum required for your rank, you will not lose your rank. There are no guild demotions in "Daggerfall".
It is a VERY good idea to build up a cushion of rep with the guilds that you belong to. This is especially true of the Thieves Guild and the Dark Brotherhood since it's very difficult to rejoin if youre kicked out. Occasionally you will take a quest which will involve stepping on the toes of another guild. For example, the quest from the Fighters Guild which involves protecting the client from assassins will require you to kill several assassins. Also, some of the nobles who will give you quests will be involved in smuggling and you will run afoul of the Thieves Guild. If you complete the quests to rescue the kidnapped child, your rep with the Dark Brotherhood or Thieves Guild will drop 15 points. When this happens, your rep suffers and you can be kicked out of the guild when your rep drops into negative numbers. To avoid this, make sure youve always got 30 to 40 points of positive rep with these two guilds.
Each guild has certain advantages which go with particular ranks and promotions. In theory you should not be able to make use of these privileges until you are officially awarded the rank. But in some cases, this is not the case. For example, you should not be able to make use of the Spymaster in the Thieves Guild until you are rank 4. However, if your rep with "The Shadow Spies" is high enough, the Spymaster will talk to you (you have to use the "Talk" rather than "Spymaster" button) without having the appropriate rank. Don't just assume that you can't do something simply because you don't have the right rank. Go ahead and try it. The worst that can happen is that you'll be told you don't have the right rank.
A final word about guilds. Should you become a vampire, you will lose all of your guild affiliations. Except for the Thieves Guild and Dark Brotherhood you can rejoin all of the guilds. You start over as rank 0, but after 28 days (4 game weeks) you return to your former rank. If you have not joined the Thieves Guild or Dark Brotherhood before becoming a vampire, you can join afterwards. Just go nibble on a few townspeople or pick a few pockets and the invitations will show up eventually. If or when you decide to effect a cure for your disease, your guild memberships will be restored (including Thieves and DB). Since rank is related to skill and rep, you may either retain your former rank or perhaps even gain rank. And remember, your reputation moves one point closer to zero every month or two, so keep in touch with your guilds by performing an occasional quest for them.
Each guild provides some basic services to its members. With the exception of the Knightly Orders, each guild offers training in the skills it requires, plus a few extras. The following table will link you to pages for the various Guilds where you will find information on their required skills, additional skills they will train, and benefits of membership at various ranks.