Maybe there is some specific procedure you're supposed to follow, but the basic thing is you don't want the pto coupler to bottom out (has no more room for the pto driveshaft to compress) against the pto shaft at the back of the tractor when the implement is dropped down to its lowest point. If it is bottomed like that, the weight of the implement will beat against the tractor differential, possibly causing damage to the tractor pto, bearings or the entire rear end of the tractor.
With a post hole digger, for example, you'd probably want to remove the auger and lower the PHD assembly to the ground so you can see how far it will drop before the pto driveshaft is fully compressed. Ideally, you'd like to be able to lower it into a hole maybe a foot deep - more than you'd ever dig in actual use - before it bottoms out. Added thought: before breaking out the hacksaw, you should also try different top link adjustments and the different top link mounting holes, which changes the geometry. Maybe there's a setting that will work without cutting.
If you do need to shorten it, you don't want to remove too much or it will come apart when you raise it. So, it's possible to leave it too long and also possible to shorten it too much. It's probably even possible with some implements and tractors that you can't find a workable length at all, in which case you'll need to look for another implement, I guess. So far, that hasn't been a problem with my BX, which has driven a PHD and a rotary spreader off the rear pto with no problems. Probably an implement specifically designed for the tight geometry of a subcut 3 pt is a safe choice, although they tend to cost more than a standard geometry implement of the same size.
