When I DM, I keep a pretty loose interpretation of the rules of Dungeons & Dragons, and I try to encourage my players to do the same. The rule system in most RPG's doesn't exist to define a win condition. Instead, rules only provide a common operating picture and a structure for the game to be built upon. Remember that the rules are not a guide on how to have fun.

I don't throw out all the rules when I DM, but I often make exceptions or gloss over rules-as-written. I try to encourage my players to have the same attitude. I find that players who are very strict with the rules tend to miss opportunities to be creative and treat the game like chess instead of theatre-of-the-mind. I find that style of play to be hopelessly boring. In addition, flexible rule-breaking is a great defense against the rules-lawyer. I have some rules for my rule-breaking, though. Here they are:

1) Know the rules.
If you are responsible for adjudicating the game and making rules decisions, then you and your players still need to be working from a shared base of understanding. It is not enough to know the rules, though. If you are a rule-breaker like me, then you need to think about second-order and third-order effects of rule changes, and you also need to understand the purpose of the original rule. You may consider some-corner case scenarios, but don't spend much time on it if it doesn't look like it will come up in your particular game. Without this understanding, your changes may hamper the game and call your judgement into question. Your players need to trust your ability to adjudicate the game fairly.

2) Have a purpose in mind.
Don't be a game designer. Don't re-write the system. Don't change a rule without a reason. This reduces the game's workload and ensures that you only alter the critical stuff. Everyone at the table has to keep track of your changes, so don't over-do it.
Good reasons to alter a rule include:

1. Reduced bookkeeping- Replacing milestones, for example.
2. Alter the mood of the game- Healing House Rules
3. Providing new options- Expanded hero point uses
4. Dramatic highlights- I recently altered the rules for forced movement off of a cliff for a single encounter to leave players hanging off the cliff edge by their fingers to heighten the fear of falling into an abyss.

3) Be clear that you bend the rules.
I've had players that notice every single exception I make to the rules and who consciously refrain from telling me the "right" way when I crate an exception. Over time, all my players realize that I know the rules, but that I don't always bother with strict adherence to them. Typically, when I'm managing a combat, I modify features or rules associated with the terrain, the monsters, the action sequence. Or I'll allow a combination of skills or an outcome that is not by-the-book. My players all know that the more creative you are on your turn, the more I'll let you get away with.

4) Don't stack the deck.
Social games depend heavily on a shared sense of fair play to remain fun. When you DM, it may be tempting to bend the rules in your favor in the spirit of giving your players a challenge. If you do that, you can expect to breed an entire group of rules-lawyers. This idea also applies to individual players. Favoring certain players over others is bad form in any game, and will certainly lead to unhappy discussions. To the greatest extent possible, if you change a rule or make an exception, let it be something that affects all the players and the monsters equally.

5) Be consistent and concise.
There are actually two groups of rule-breaking. Permanent changes and temporary changes. Each of these need to be handled differently.

Permanent Changes, or House Rules, need to be clearly laid out for the players as soon as possible. These need to be carefully crafted and deliberated; because, if you fiddle with your house rules past a certain point, you and your players will have a hard time remembering which version of the rules you are working with.

Temporary Changes don't need to be laid out for your players and don't need much deliberation as long as you apply it equally to everyone. Keep the changes small and don't feel as though you have to apply the changes to every encounter. These types of changes work best when they are reasonably related to the situation.

For Example:
In my last session, the party confronted a shadow dragon, and it was turning into a really boring slog. So, I broke the rules and had the shadow dragon summon some more minions after he finished one of his turns. I gave him an action that he did not have to do something that he could not do. This would seem to be stacking the deck (in the monster's favor), except that:

1. They were minions, and therefore not particularly dangerous or effective.
2. Players were getting bored and the melee fighters needed something to do.
3. I realized there is a fundamental flaw in the design of solo monsters in 4e, but I can't fix that on-the-fly. I'll address some of my ideas about solos in the next column.

The Last Word
There it is. As a DM or a player, you don't want to be a slave to the rules, especially in a game that centers around fantastic, imaginative adventure. But to play as part of a group, you need to have a common set of rules to work from. Breaking the rules of the game is an art, and practice will help you get better at understanding the game and develop your improvisational skills.

So, go out there and break some rules, then come back here and tell us about it. The best ideas will probably end up on our House Rules podcast.