In addition to being a vital skill for hiking in a safe and knowledgeable way, I find personally find navigation to be one of the most fulfilling reasons to go hiking. Folks who spend their lives in urban environments become divorced from what is around them. Knowing where you are and where you want to go to is a big part of taking control of ones life. Man, that sounded like total hippy Zen garbage!
I've divided this section into two subsections. First of all the basics - map, compass. This then leads to the second subsection in which we put these principles into practise and moving from A to B. Here I would like to consider the key skills that are required to not become 'geographically challenged'. You will hopefully notice that the fundamental element of this is being aware of your surroundings, and where you fit into these surroundings (the hippy zen crap). Oh, and basic high-school geometry. To offset the 'hippy' tag... As an infantry commander you have to continually know where you are at all times when on patrol. The guys get most upset when you make them walk further than they need to, and even more upset when you call in fire missions on your own position. Zen takes many forms.
After preparation of this section I made a disturbing discovery. There is an annoyingly good book and indeed a whole web page on navigation I wasn't aware of. It has methods in it that I have always used (eg. hand angles), but I've never seen in civilian print before. I thought I was going to be first! I strongly recommend "The Ultimate Navigation Manual" by Lyle Brotherton, published by Collins. There are lots of good practical bits in it, and I like his general philosophy of being aware of what's around you. For those of you wanting to get in some more detail about the nature of map coordinate systems I've found the US Army Field Manual FM 3-25.26 is good. It has restricted distribution, so is not on my Download page. But who knows what a Google search can come up with, especially any post-2005 editions? A resource I found recently that is really good is the UK Army publication based on the Manual of Map Reading and Land Navigation, Army Code 71874.
There is no substitution for practise in getting good at navigation. I strongly recommend taking up something like orienteering or rogaining. Apart from helping one get ones sorry ass off the couch, it is also very useful for building perceptions of what is around you and - very importantly - how your view of the landscape changes as you move around.