Myth: If you crumple your napkin into a ball, you MUST be trying to hide something horrible.
Myth: If you lay your napkin neatly folded on the table at the end of the meal, it is a rude insult to your host, as it implies you think he may try to use it again without laundering it first!
Now, back to the beginning! As soon as you are seated, the very first thing you should do is place your napkin in your lap. Chances are it is a large enough rectangle that you'll leave it folded in half once so it may lay neatly across your lap. The fold should be toward you and you should pick it up from your lap by the folded edge so it does not come open and spill crumbs. In a fine dining restaurant, your server will often place your napkin in your lap for you.
If you are in casual company, you may like to request a black napkin to avoid lint on your skirt or slacks. If you are with formal company, it will be best not to imply you are disatisfied with the option so accept what you are given. A very thoughtful server will automatically change the napkin color for you, if indeed he has the options available.
If your silverware is rolled in your napkin, unroll it immediately upon taking your seat and arrange it in the standard position for dining, then place your napkin in your lap.
Now that the meal has begun, kindly do not place your napkin on the table again during the meal. Your napkin should reappear on the table only at the very end. If you must be excused from the table, leave your napkin on your chair. Your server may move the napkin to the arm of the chair for you.
If you drop your napkin on the floor and have the means to discreetly retrieve it, do so. If it will be a disruption, quietly ask your server for a replacement. Kindly do not crawl under the table.
Dab your mouth carefully during the meal, and avoid multitasking, that is, dabbing your mouth with one hand while holding a fork or glass with another. Definitely do not blow your nose into the linen. Do not spit food into the napkin. Carefully removing pits, bones, or gristle is a matter of hand or fork, and the item belongs on the edge of your plate, not in your napkin.
Now let's be honest...you may have once found a way to avoid an awkward embarassment by slipping something that tasted awful into your napkin and although this is not recommended, it sort of falls into the category of what happens in Vegas, stays in Vegas. Try not to do it again, and trust that a discreet removal of the undesirable item by hand may be best in the future and is certainly permissable.