The testnet is your sandbox where the sustainability of your currency and network can be put to test before the launch or prior to a major update. Generally, you wouldn't want to roll out a feature, which might jeopardize user experience or network health.

CryptoNote testnet tool ignores the real network by skipping its checkpoints and peer lists. It also generates a new genesis block on startup. By doing so you create a new block chain for your network which can be used for testing purposes. This can also be useful for pool owners deploying a new feature related to mining, since their own testnet doesn't have external miners to compete with for the blocks during the tests.

1. Post binaries compilation process. First of all you should start the daemon with the "--testnet" and "--data-dir" arguments:

cryptonotecoind --testnet --data-dir=new/path/to/blockchain

--testnet argument forces daemon to start a new testing network.
--data-dir argument should be different from the default folder so that the testnet doesn't interfere with the real network's block chain and peer pools. When you launch a new testnet, be sure to provide it with a new folder.

2. Launching testnet simplewallet is easy. It requires only the "--testnet" argument to connect to the testnet daemon:

simplewallet --testnet

3. In case you need to create a testnet that consists of more than 1 node, you should connect each next daemon to the previously launched testnet through the "--add-exclusive-node" argument:

cryptonotecoind --testnet --data-dir=new/path/to/blockchain --add-exclusive-node=testnet.node.ip:port