I was looking forward to this game for years, all overhyped about it and then, when my significant other finally got it for me - it was unplayable. Felt so horrible about that.

So after a few days of spelunking trough various forums and Ubisoft support I managed to set everything up to work flawlessly, and happiness ensued!

Main reason I wrote this is because I wanted to spare people from lag induced depression and help everyone enjoy this game to the fullest. :)

If you use a HDMI cable for video, be sure your speakers are hooked up directly to your PC, i.e. that audio is not going through the speakers of your monitor or TV as this produces even extra audio lag.

If you use a PCI or PCI-e soundcard (Sound Blaster, XONAR, ...), or a USB headset you will get about a quarter of a second of audio lag - try using the inbuilt audio on your motherboard with normal (analog) headphones or speakers.
Most people succesfully solve their lag issues that way (also, major .INI tweaks just won't work on SB and XONAR).

Read Steam\steamapps\common\Rocksmith\RocksmithConfiguration.pdf to learn how to set up your RealTone cable and soundcard properly.

In short, your primary audio output and Rocksmith cable have both to be set up to "16 bit, 48000 Hz (DVD Quality)" setting.

Open C:\Program Files\Steam\steamapps\common\Rocksmith\Rocksmith.ini and try with these settings:

If there's audio crackling when you start the game, increase MaxOutputBufferSize by multiples of 8 or 32 (288, 320,...). If there's no crackling you might want to decrease that number even more (most high end PCs can handle 152), but with these settings audio lag is virtually unnoticable (about equal to audio lag my XOOM effect pedal makes).

It's worth noting that MaxOutputBufferSize setting of 0 isn't what it looks like - it actually defaults to 1024 which produces noticable audio lag.

While you're tweaking MaxOutputBufferSize values, if there's crackling on the loading screen you can just kill the game with Alt-F4 and try again with a higher setting.

Good luck!

Update 6/2013:
After upgrading to Windows 8, I had to increase MaxOutputBufferSize from 152 to 176 i.e. if you plan to upgrade to W8, expect some slightly worse performance in Rocksmith.