The proper way to overclock would be changing the multiplier.
You could bump up the FSB and play around with the memory also, but it's best to hit your CPU max first.
Download and install HWmonitor to keep an eye on your temps.
Run Prime95 for an hour or so and make sure it's stable, and that your temps (while Prime95 is running) do not exceed 60c.
I would suggest leaving that Percentage overclock thing at default, and changing the multiplier to 17, which would give you 3.4ghz. Run Prime95 and HWmonitor, make sure everything is fine, and then bump it up another 100mhz.
Once you see that everything is fine with HWmonitor and Prime95, you can move it up a notch. If you run in to a wall where it becomes unstable, increase the core voltage SLIGHTLY, and try again.
You will hit your wall somewhere around 4.0ghz actually, assuming you have a decent air cooler. I got my Phenom 2 x2 550 to 4.2ghz stable on air