A separate help file is fine, and a hyperlink that jumps context-sensitively from the form to the relevant part of the help file is even better. But where practical, it's best to put the explanation right on the form. If you require six-character alphanumeric passwords, say so. Don't make users click on Submit to find out the hard way. Then accumulate that information into a Web, mail, or news archiv e that you can review periodically.
People are in a hurry, and the Web relentlessly encourages context-switching.
Over time, patterns emerge from these responses. Pay attention to them, and refine your feedback mechanism accordingly. To improve a business process, you have to be able to measure it. Use layout and visual cues to organize elements. Two years ago, I avoided using HTML tables because a lot of browsers handled them poorly or not at all.