1. Look at the outside of the gun carefully. Note where the bluing wear is. Then check the sideplate screws and strain screw for evidence of shadetree gunsmithing/parts changer work. If the screws are really buggered up, I'd probably pass unless the gun was dirt cheap. Examine the gap where the crane meets the frame, it should be even along it's length. Also look closely at the cylinder notches. If the edges aren't sharp and crisp, the gun has probably been abused.
2. Cycle the action once for each chamber in both SA and DA, more if you think you felt something grinding/dragging/etc. in the action. While you're doing the SA cycling, you want to check for hammer pushoff. Simply cock the hammer and then put some forward pressure on the hammer. If the hammer falls, walk away unless the price is dirt cheap.
3. Along with the above, you'll want to check the timing. Apply light pressure to the cylinder with your thumb while cocking the hammer. Just before or right at full cock, you should feel the locking bolt slip into the cylinder notches. If that doesn't happen, the timing is slow and the gun needs work. I'd probably pass unless it was cheap.
4. Again, with the above, you'll want to check lockup. Some will dry fire the gun and keep the trigger held rearward to do this, but I do not. I simply cock the hammer and then note how much rotational and longitudinal play the cylinder has. All will have some slight play, but if its really loose I would pass unless it was dirt floor, rock bottom cheap.
5. Open the cylinder and give it a good spin. Watch the ejector rod for wobble. It should have none, but a very slight wobble is ok. If it's really out of whack, pass unless it's dirt cheap.
6. Look at the cylinder ratchets for evidence of wear. They should have fairly sharp edges.
7. Look at the recoil shield to see how much wear is evident on the finish there. A heavily used gun, or one fired with high pressure cartridges such as .357, will have a lot of wear here. A really heavily used gun will have fairly legible headstamps from the cases on it here.
8. Look into the chambers and make sure they're smooth and brightly polished. A gun with rough chambers will give extraction problems.
9. Look at the forcing cone for evidence of cracking(this is generally not a problem, but can be with heavily used K frames firing a lot of .357 magnum ammo) and at the top strap just above the barrel breech. A heavily used gun will have a pronounced flame cut line here. A low pressure cartridge such as the .38 will have to fire a lot of rounds to exhibit a deep flame cut.
10. Look at the firing pin hole in the frame. It should be clean and have sharp, clearly defined edges. I won't say it would be a deal breaker, but it would be reason to give the gun a more thorough inspection.
11. Look down through the barrel while holding a white piece of paper or cloth in the cylinder opening. This is generally enough if there is good lighting, if not, substitute a flashlight. It's uncommon, but possible, for a barrel to have a "ring" or bulge in it from someone sticking a bullet and then firing another round. If you see anything that looks out of the ordinary in the bore, RUN AWAY! While you're looking, check the muzzle for dings/dents and wear from a cleaning rod.
12. (requires a set of feeler gages), Close the cylinder and try different size leaves from the gage until you find one that fits all the way through. Then check the gun from the other side to see if it's the same, or a bigger leaf will fit. Next, pull the cylinder to the rear(while closed) with one hand, and try thicker leaves until you find a size that won't fit. What you're doing here is finding the barrel to cylinder gap, as well as the endshake. Factory spec maxes out at .009" barrel to cylinder gap I think on S&W revolvers. Ideally, you want something more like .004" barrel to cylinder gap. The endshake measurement shouldn't be more than .004" to .005" max(subtract the barrel to cylinder gap from the larger reading obtained with the cylinder held to the rear). Less is better.
I'm decidedly biased. 

|