Decay is the amount of time it takes for the gate to close. The threshhold is the amplitude(volume) point that it closes at. People use different settings for different purposes. For general use I would mute the guitar with my hand and adjust the threshhold up to where I no longer hear the hiss or buzz. Then strum a chord and let it sustain until it dies out. Listen carefully to the point it stops sounding. If it stutters on and off then adjust the decay up in value (the stuttering factor is related to the spongy feel Miles was describing). If it dies out to more hiss/humm than you want then adjust it down.

If you are looking for a more staccato cut for highly rhythmic playing use the hard gate.

One last thing. Forgo the gate if you have very little noise as it is really a band aid to make an unbearable situation bareable. In a recording scenario the noise can be eliminated with good editing and so I would not use the gate and manually remove the noise in the recording software (the automation is cool but a human in this case is better).