The simplest method I use to illustrate how to grip a cue stick is by outlining a small area of my hand using Master brand chalk. Inside the semi-circle, along the first knuckles of my fingers and a bit of incidental contact with the palm for the most part, is where all the action takes place.
Precisely where my hand touches the stick is a matter of ease and flexibility. Like many players, my hand may roll along the stick's length or circumference during the stroke, or the stick may roll along my hand.
I wrote "like many players" as I meant many skilled players. Most amateurs grip the cue far too tightly. It's a loose grip, with lots of play and freedom of movement in the shooting hand.
This section at Pool & Billiards at About.com has numerous tips and instructional photos to steer you in the proper methods of pool shooting.