Back in the dark ages of the late 1980s, most of us were connecting to UNIX systems using dumb terminals like the DEC VT-320. The screen on this terminal measured about 10 inches wide, and 71/2 inches tall. There was a generous margin around all four sides, making the viewable area about 9 by 6.
In 80-column mode (a holdover from the size of punched Hollerith cards by the way), the cell size for each character was 15 pixels wide. So, 15 pixels per cell times 80 cells divided by 9 inches gets you 133 pixels per inch (PPI) horizontal resolution. Even the studlier displays common today are only run at about 100 DPI. Yipes. The vertical resolution is much smaller (50 DPI), but the pixels aren't square, and there is less vertical detail needed in the Latin alphabet.
Now, take the better resolution, subtract RGB gun misalignment (since the VT320 is monochrome), add a nice dark background and pixel-level smooth scrolling, and you have a display that is far sharper and easier on the eyes than anything you'll get out of a computer monitor. In short, with the VT-320, you were using a special purpose tool engineered for viewing text.
Somewhere along the line, graphical user interfaces and big color monitors became a neccessity. In addition, most of us found that even for terminal emulation, having multiple windows on the screen is a more effecient way to work. Most Macintosh users are using one of a handful of programs for terminal emulation: The original NCSA Telnet, (or one of the improved derivatives like BetterTelnet), or NiftyTelnet, a fast, lightweight emulator.
Within the limitations of modern displays, there are still lots of ways to improve the quality of your terminal emulation. Most of these are centered around the selection and configuration of fonts.
The first consideration is the selection of a fixed-width font. The Macintosh System Folder comes with two: Courier and Monaco. Courier is based on the IBM selectric typewriters of lore, and suffers from at least a few problems: The zero is not slashed, which makes it difficult to distinguish from the letter 'o', and the number 1 looks too much like a lowercase letter L. Monaco does not have these specific problems, but some people complain that the letter 'a' has a shape which can easily be confused with an 'o', especially at small sizes.
Users of any of the versions of Qualcomm's Eudora will be familiar with a font called Mishawaka (or, if you have it and wonder where it came from, you now have your answer). At first glance, Mishawaka looks a lot like Monaco, but this is mostly because Mishawaka is only available in bitmapped form, and only in point sizes up to 12. At that size, the differences are indeed small. However, looking at them blown up shows some distinguishing characteristics: Most overtly, the lowercase letter 'a' is designed with an acender, which makes it easier to distinguish from the 'o'. Next, we see that the bowls of letters like o,p,q,d and g are shaped more square, where Monaco has a distinct, tilted shape. Finally, the unusual, vestigial serif-like tails on Monaco's i, j and l are missing.
Quicktype Mono comes with Macintax, and maybe other Quicken products. It's most similar to Lucida Sans Typewriter, but the bold version is not bold enough to stand out as it should.
The other popular terminal font is Lucida Typewriter (available in both serifed and unserifed) versions, part of the computer-system oriented Lucida series by Charles Bigelow and Kris Holmes. If you use a lot of Microsoft products, you may find this font included, though I'm disappointed to find that Microsoft has removed Bigelow and Holmes from the foundry name, and replaced it wholesale with the word 'Microsoft'. I sure hope the licensing allowed that. Lucida Sans Typewriter has many things in common with Monaco, including the quirky serif-stubs on the i, j and l. At a closer look, however, you will find that the Lucida font has a more modulated stroke, and a humanist axis that makes for a weight difference in the vertical and horizontal strokes. Also, the bowls are not quite as tilted. I mostly prefer Monaco because the strokes are less modulated (which contributes to a more even color), and because the spacing for narrow letters like 'i' seems to have been designed a bit more carefully. And again, Lucida's zero is not slashed.
On the linespacing front, Monaco and Mishawaka are generously leaded, which keeps the lines from appearing vertically crowded. Courier and Lucida Sans Typewriter are more frugal in this regard, but this allows for a few extra lines at the same point size (nice for those long emacs windows).
Once you have selected a monospaced font, the next challenge is dealing with character attributes like bolding. BetterTelnet allows the selection of a bold font separate from the normal font, and gives you the option of turning on bolding as an attribute if bold version of the font is not available. As much as I like Monaco for character-cell display, the TrueType version is the only one of the fonts discussed above which has the problem of growing horizontally when bolded. This makes it almost unusable for terminal applications which are likely to display something in a bold font (Unix man pages, for example), because it throws the spacing off. (FIXME: Is there a bitmap version?) Keep in mind that some people deal with the bolding issue by simply instructing the terminal emulator to invert the colors to emphazise text. I find this too distracting, and I recommend using an alternate color instead. This effectively elminates spacing issues.
Finally, there is font size. This is mostly personal preference, but there is at least one practical consideration: If you decide to use Mishawaka, and use a high pixel-per-inch resolution (laptops are notorious), you may find the 12-point maximum size too small.
For those of you who are curious: I'm currently using BetterTelnet, and the TrueType version of Monaco, with a deep red color (hue=356, saturation=77, lightness=51) representing bold. I run my terminals in 14 point on my PowerBook, and 12 point on my desktop.
If you want to learn more about type in general, you should start with Adobe's page on type-related issues at http://www.adobe.com/type. The Font Bureau is a neat place to browse fonts, and their type sample pages make for interesting reading.
If you become a complete typophile, you'll want to pick up The Elements of Typographic Style. www.typebooks.org has an interesting interview with Robert Bringhurst, the book's author.