For anyone wondering what this stage entails, here's how I approached it.
Firstly, I read through the covering note, house style, and all the CE's comments and corrections to check the extent of the job. The manuscript has been coded, which means codes are added to things like line spaces and chapter numbers to instruct the typesetter.
There were a few typos (let's blame Word, which stopped displaying errors after my document reached a couple of hundred pages), a few queries for "sense" (where something wasn't clear to the CE) and lots of house style things like hyphenation. Overall, the CE did a thorough job and, fortunately, there wasn't a lot for me to think about.
Then I went to Office Max and bought a pack of erasable Crayola colored pencils (because the instructions from HC told me to use a colored pencil) and a sharpener and some sticky notes. I never use pencils if I can help it because I don't like how they drag on the paper. As an editor I tried a mechanical pencil but kept breaking the point, so I was stuck with a grey-lead and frequent use of a pencil sharpener. I much prefer using ballpoints.
Note to self: Don't buy erasable colored pencils again! Although being able to erase is useful, the lead itself is chalky and crumbles as soon as you sharpen it.
Anyway, the next thing I did was curl up on the coach with my red Crayola and deal with the CE's comments and changes, adding sticky notes to anything that needed further attention. I gritted my teeth at the addition of serial commas, which as a reader I find distracting (especially in fiction), but the Chicago Manual of Style likes it so HC likes it.
Then I went to the computer and opened up my manuscript file. In the weeks since it's been out of my hands, I've made additional changes to that file (using Track Changes), so I copied all those changes into the hardcopy set.
Last of all, I went through the sticky notes and sorted those out. In four places I added a couple of sentences either for clarity or to make changes necessitated by the sequel, so I typed those in a new document and printed out each addition on a separate page, marked, for example, 77A for the insert on page 77. On page 77 itself I wrote "Insert 77A" in the appropriate place and slotted in the insert page behind it. This is all per HC's instructions but in any case it's the standard way to do things.
Oh, and I also worked on the dedication and acknowledgements. I'll go through everything one last time before sending it back--my deadline is October 6th but I think I'll be done before then.
The next time I see Song of Scarabaeus it will be as page proofs. At that stage it's too late to make changes (other than actual errors) because it's expensive to reset lines, paragraphs and sometimes entire pages when the text flow is altered. After 11 years as an editor, I can testify that this doesn't actually stop authors from fiddling with their pages...
One more thing: I went back to my electronic file and copied over all the changes, so I have a complete updated version. Next it's off to Kinko's to photocopy the hardcopy before returning it.