"Crank 'em high and let 'em fry" might sum up some players' attitudes toward pickup height adjustment. But there's a lot more to it than that, and many guitarists will just as often prefer the sound of their electric guitars with the pickups lowered slightly, rather than raised higher.
Most players are aware of the fact that adjusting your pickup height will affect your guitar's output, but fewer tend to realize the ways in which such adjustments can affect your tone, too. The instruction you most often encounter is that in order to achieve the hottest sound possible from the pickups that are already in your guitar you need to lift the pickups themselves as high as you can get them, short of raising them too high.
Overdo it, and obviously the strings will hit the pickup covers or pole pieces while vibrating. Even when they're not quite that high, though, the magnetic field can exert its force upon the strings and interfere with their ability to vibrate freely, which is heard as a slightly dissonant, atonal sound, like an out-of-tune harmonic that follows the root note, along with a lack of body and sustain.
There's a lot more to pickup height adjustment, however, than merely maximizing volume while avoiding problems, and a look at some of the other variables can provide a new tweaking tool in your tone arsenal.
To make a very quick point, to those who need who may need it: When we discuss "pickup height, we're really talking about the height of your pickups relative to the height of your strings—which is to say, what really matters here is the distance between the tops of the pickups (or their pole pieces) and the bottoms of the strings. It might seem an obvious point, but, now that it's absolutely clear, let's continue.
How Low Can You Go?
Consider this topic from the flipside: lower your pickups a little further down into the body of your guitar than would be considered "standard"—that is, position them farther away from the strings—and you can be sure of giving the strings plenty of unencumbered air to vibrate in. One other result of this action is a little less output.
But whether you play a Gibson Les Paul Standard, a Fender Telecaster or Stratocaster, a Gretch Duo Jet, or another electric, most guitars have plenty of output regardless (unless you get crazy with lowering the pickups). You can always turn up your amp, so that slight decrease in output isn't a problem for many players.
What you do often achieve, alongside the slightly lesser output, is a tone that's woodier and more resonant, with greater dynamics and touch sensitivity and a "livelier" feel to the playing response. Pick lightly and it's clean yet warm—dig in harder and you get increased drive and output—but without a big sacrifice in note definition and clarity.
And what do we hear at the opposite end of the spectrum, when your pickups are set too high but not high enough to cause the buzzing or ghost-noting issue described above?
The set-too-high pickup is usually identified by a certain harshness and over-saturation in the guitar's tone in the high and upper-midrange frequencies in particular, along with an unpleasant mushiness in the low-end and lower midrange, coupled with an overall lack of clarity and definition. Your guitar might be a little louder, relatively speaking, but it won't sound its best.
Quirks by Type
The tips for pickup-height adjustment and their behavioral quirks vary from type to type. Here are some points worth noting.
Strat and Tele-Style Pickups
These pickups have actual magnet segments used as their pole pieces and can exert a lot of magnetic force on the strings, so they can show the more extreme symptoms described above when they're set too high.
The lack of sustain and ghost-noting is particularly evident when the neck pickup is set too high, where those magnetic pole pieces will interfere with the strings' vibrational force at a wider arc than that which occurs directly above the bridge pickup.
These guitars often have their neck pickups set lower than their bridge pickups anyway to balance any output disparity between them, it's also worth considering the above factors when dropping those neck pickups a little lower.
Full-Size Humbuckers
Humbucking pickups patterned after Gibson's original PAF design exhibit a little less magnetic string pull when set high, because their magnets are positioned beneath the coils rather than within them, transferring their magnetic energy to steel pole pieces within the coil. They can often be set slightly higher than Strat- and Tele-style pickups (relatively speaking) without detrimental effects, but don't always sound their best positioned that way. Often you'll find your Les Paul or SG, for example, sounds fuller, richer, clearer, and more dynamic when you lower the humbuckers a little farther into the guitar.
Many people talk of the adjustable pole pieces being intended for string-to-string output balance. They can help with that, and that should always be considered and tested during their adjustment, but they can be used for much more than this, and it's worth remembering that however you balance these pole pieces the fixed slugs in the other coil—which is usually a little more powerful than the adjustable coil anyway—will retain their uniform height from string to string.
Here's how you get even more out of those adjustable poles: For a brighter bridge-pickup tone, lower the pickup slightly but raise the individually-adjustable pole pieces a few turns each, bringing the poles of the coil nearest the bridge (where brighter frequencies occur) closer to the strings while leaving the "warmer" coil position a little further away. Reverse this—pickup raised, adjustable poles set to their lowest—for a warmer, thicker bridge tone. This technique is reversed again for the neck pickup, since the coil with the adjustable pole pieces is further from the bridge than the fixed-slug coil, and therefore delivers more warmth into the double-coil sonic blend.
P-90 Pickups
The adjustment potential of any P-90 pickup differs depending upon whether it's the "soapbar" type, which is height adjustable, or the "dog-ear" type, which is not. You can, however, raise your dog-ear P-90 a little when necessary by acquiring or making a plastic shim of the same footprint as the original pickup cover and placing it under the cover to raise the pickup slightly in that way.
Otherwise, the only height adjustment for these is available via their six threaded-steel pole pieces. Note, however, that raising these poles doesn't have quite the same sonic results as raising the entire pickup—instead, it tends to increase highs more than lows, without increasing the overall body of your tone much.
Soapbar P-90s can be adjusted within reason with the same considerations as any of the above pickups that offer overall height adjustment. With these, though, you can also use their individually adjustable pole pieces not only to balance string-to-string output, but to achieve a certain edgy clarity in the P-90's famed midrange punch by lowering the pickups slightly but raising the pole pieces closer to the strings, as in one of our dog-ear adjustments above.
Try It—You'll Like It
The main take-away from all of this stuff about pickup height adjustment is that this is an entirely non-invasive modification with most guitars and pickup types, and you can experiment at will without inflicting anything upon your beloved instrument that you can't easily undo.
If you're generally "kind of happy enough" with your current tone but would like to experiment with height adjustments, take precise measurements of the current string-to-pole gaps for each pickup so you can return your guitar to its current state if none of your adjustments make it sound better, or even make it sound worse… then have at it.
Don't be afraid to lower those pickups into the body of the guitar a little more than you'd normally think was acceptable, and play the thing for a good long while using several amp and pedal settings, adjusting tone and gain and output levels at the amp as necessary to bring your guitar's new sonic characteristics and output levels into their best light. You might be surprised by what you achieve.