"best way" is a bit ambiguous. There may be one way which works for your style fantastically, but fails for other styles.
Essentially you just need to understand light and shadow. Then it's a matter of creating highlights and shadows accordingly. There are several ways to do that.
- Effect > Stylize > Inner Glow can create a "sunken" look
- Effect > 3D > Extrude and Bevel with only a bevel applied can create a beveled edge which can give the impression of depth.
- You can combine the two items above to create yet another possibility.
- You can use gradient fills and strokes.
- You can manually draw highlights and shadows.
- And you can, of course, mix and match among all of these. (Perhaps not the manually drawn and 3D effect that can create horrible miters)
Which method you use really depends upon what appearance you are after.
Additional after question edit with image
Your sample image is simply using the first option I've presented, Effect > Stylize > Inner Glow. That's all.