Depends on the game, Minecraft for example, when playing in the survival mode I'm generally speaking going to be on Hard difficulty this just means mobs track you further, hit harder and you get less use out of tools before they break.

In FPS games I play through on normal and then once I've completed that I go through on the hardest settings. I do this because it's a real challenge and with games like Call of Duty titles or Halo titles where the main campaign can be completed in under 5 hours it adds a lot of longevity to the single player experience.

Games like Fallout 3? I tend to have the difficulty relatively high because it cuts down the amount of ammo you acquire from enemies which is fun because in a play through I started with one character I ended up with thousands and thousands of rounds for guns that would hardly ever break (Xuan Xuan Assault Rifle - 2000+ rounds and easily repaired by Chinese Assault Rifles of which I had around a hundred in a locker in my house at Nuke Town) That being said Death Claws if you're not properly equipped are a devastating foe on any difficulty. That being said a dart gun and an assault rifle with a healthy supply of ammo are all you need for taking down any number of them. One dart will cripple the legs of the beast and walking backwards pumping ammo in to the torso and head will finish them off in no time. Conversely I prefer to have difficulty in Morrowind/Oblivion to be normal - easier than normal because I suck in those so much more.

Driving games are the one where I always no matter how little I've played the game crank the settings to the hardest. If I'm going to play driving games I want to be challenged as much as possible, this is because I am fairly ridiculous in terms of skill on most driving games.