The installer will set up an out of the box working LTSP install for you if your server has two network cards built in.
If that is not the case it will tell you what to modify to run with a single network card.
Once you boot up the CD, hit F4. The "Modes" menu will pop up. Select "Install an LTSP Server". Now just move on with the install.
Towards the end of the install the installer will start to build the client environment from the packages on the CD.
Which then will be compressed into an image...
If the installer is done and has rebooted into your new system you will be able to boot your first Thin Client right away.
Installing on top of an already running desktop system
You need to set up one static network interface where you will attach the thin clients, install two packages and run one command.
Configure your spare interface for the thin clients to have the IP 192.168.0.1 (and make sure it is up and running). If you can't get the new GNOME network manager to work you can always install the older, simpler version of network manager by going to the "add/remove" window and searching "network". Make sure to search "all available packages" and "apply" the changes. You will find the new network manager under settings -> network. Then follow the instructions below.
sudo apt-get install ltsp-server-standalone
Now create your Thin Client environment on the server with.
If you are on a 64-bit system but your clients have another architecture use the --arch option eg. sudo ltsp-build-client --arch i386
After that, you will be able to boot your first thin client. If it doesn't boot try rebooting the server.
Note that if you want to use another IP than the above, you need to edit the /etc/ltsp/dhcpd.conf file to match the IP values and restart the dhcp server. WARNING: Use the service command and not the init.d/ script because dhcpd's sysvinit script is not compatible with Ubuntu/upstart and will error when it your config is correct.