Tape and Mud the Joints and Holes
Tape the seams between the drywall panels with mesh tape (Image 1). This tape is designed to prevent visible cracks from appearing along the joints of the drywall sheets.
Next, it's time for the mudding process. Use a trowel and an all-purpose joint compound to fill in all of the joints and holes. An all-purpose joint compound is designed for use not only for filling the joints and holes in drywall, but also can be used as the topping or skim coat.
Even though joint compounds come pre-mixed, it's a good idea to mix it up a bit once you get the compound in the trough. This will insure that there aren't any lumps.
The edges of the sheets of drywall are recessed or beveled. The reason for this is to allow for the mudding process so that the walls will be completely flat. Apply a narrow strip of compound to the joints -- just enough to cover the tape (Image 2).
Also, make sure to fill the screws with the joint compound. Just partially mud the trowel for filling these since it is such a small area to cover. There is no need to sand between coats, just make sure it dries thoroughly before starting on the skim coat.