Puzzled by Firewall in OS X

I've recently bought a MacBook Air and am a "switcher" - still coming to terms with the difference. The thing is, I want my Firewall activated. But when I go to System Preferences > Security > Firewall I note that the Allow All Connections option is selected by default. This seems contrary to me. I'd be very grateful to know what options I should select for reasonable security i.e an active Firewall but not at the cost of blocking "genuine" traffic. Thanks