Improper pickup height on a Fender Stratocaster can negatively impact your guitar's tone. If the pickups are too far from the strings, your guitar's tone will suffer due to a weakened signal. If the pickups are too high, the strings will be pulled toward the magnetic sections of the pickup, destroying your sustain. Luckily, Fender has made it extremely convenient to adjust the height of the pickups on a Strat.
Press the low E string against the highest fret on your Strat.
Measure the distance from the top of the pole piece (the circular metal object that sticks out of the plastic pickup cover) to the bottom of the fretted low E string. On standard Stratocaster single-coil pickups, this distance should be 5/64 inch (2mm). If it is not, you will need to adjust the pickup height.
Change the height of the bass side of the pickup by turning the screw next to the pole piece for the low E string. Recheck the distance between the pole piece and the fretted low E string every half turn or so until the pickup is at the right height.
Press the high E string against the last fret on the neck of your Strat.
Measure the distance between the fretted high E string and the pole piece directly beneath that string. On standard Stratocaster pickups, this distance should be 4/64 inch (1.6mm).
Adjust the screw beside the treble end of the pickup to raise or lower its height. Measure the distance between the fretted high E note and the pole piece every half a turn until you are at the correct height.
Some Strats come with different types of pickups installed. All of these pickups are adjusted in the same manner, but the proper height differs for each of them. Fender's website has a great Stratocaster set-up guide that lists the proper heights for each of their different pickups.