When do I know how far to go in my prep work? When is the surface ready to set on?

Prep work is paramount in this trade. You can't make chicken soup out of chicken crap! That's comparable to putting makeup on a pig.
The extra time getting the prep work as nice as possible pays huge dividends in the long run. I feel like wall surfaces should be almost nice enough to paint and look good enough to leave it at that. The closer you get to that place the better the finished product will be in the end. Make sure to tape all of your cement board joints with mesh tape and thin set, including the corners. Scrape or sand once there dry and apply a second slick coat if need be to get the surface smooth and flat.

Here's a trick to make floors flatter prior to setting the floor tiles on concrete. Flood the floor with water to the degree that puddles will form in the low spots. Circle the puddle with a crayon or equivalent marker. Remove the water, or let dry. Once it's dry you can now fill in the lower areas so as to raise up the low spots. You can use thin set and some kind of straight edge and flat trowel or most of the manufacturers have a self leveling type product. The self levelers are pricey but almost idiot proof if you follow the instructions.

Make sure in any installation that once your ready to begin that the surfaces are clean without dust on them. It's also advisable to use the flat side of the notch trowel and key in the adhesive first until you get total coverage. Once you have done that now your ready to comb in the adhesive with the notch side of your trowel.

I would also recommend skimming the back side of the tile if they are larger wall tiles and for sure do that on floor tiles, especially porcelains unless they are small mosaics.