I would like to know what is the correct way to set up partions basically what all partions do I need. I've seen some articles where they only create swap, /boot and /. Also for server setups I've seen where a /tmp /var are recommended how large should var and tmp be?

there is no "correct" at all, it depends how you wish to use the system. if you don't know about why you want to do this, don't bother, and let an installer use a basic default as you said above.

having several partitions can be handy later when experience grows. i have learned that it is handy to have a large partition for '/home', about 6gb to 8gb for '/', 512mb for swap and recently I found it handy to have a separate partition for '/var' about 1gb will do. the latter is where synaptic stores all the package files (at the moment for me now 648mb i use). if you are using several distro's that use the same base os (debian in my case) you can let them us the same '/var' partition which certainly speeds up any upgrade and software installs as synaptic will only download package files that are not already in '/var/cache/apt/archives'. make sure your sources lists have many of the same links in the distro's installed on the system. you can also use the contents of '/var/cache/apt/archives' to help speed up upgrading and installing software on other machines that you may have. it just saves you downloading the same files time and time again, in my case with my so called broadband connection with a maximum of 54kb/s these downloads can take up hours otherwise, now it is minutes.