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Suppose you have WordPress running at http://example.com/. Also, suppose that you want your blog to be located at http://example.com/blog/ and that you want other pages to be available at http://example.com/page1/.
The first thing you will want to do is to create a homepage. You can do this by creating home.php in your theme directory. Next, create a blog template. The easiest way to do this is to create a file named blog.php with the following contents in your theme directory:
<?php
/*
Template Name: Blog
*/
// Which page of the blog are we on?
$paged = get_query_var('paged');
query_posts('cat=-0&paged='.$paged);
// make posts print only the first part with a link to rest of the post.
global $more;
$more = 0;
//load index to show blog
load_template(TEMPLATEPATH . '/index.php');
?>
Log in to WordPress and create a page named "Blog" with Template "blog". You're done. The one last thing you will want to do is to update your permalinks structure to begin with "/blog/", i.e., "/blog/%year%/%monthnum%/%postname%/". Now you have a WordPress-managed CMS with a unique front page and logically-structured blog content.
If you're using the <!-- more --> quicktag to place things below the fold in your posts, you'll want to include the global variable $more and set it to zero (as shown in the code above). Otherwise, the entire post will print out on your blog's main page.
As noted above, the home.php file is not needed in versions 2.1+. If both the blog.php and home.php files are deployed in 2.1+ they will conflict and cause the blog.php templated page to appear blank.