You do not want your rug to touch the walls, nor do you want your rug to seem dwarfed by the rest of the room's interior decorating. A good rule of thumb is that your rug's length should be two feet shorter than the room's width. InteriorDesignSchoolReview.com
The article goes on to give a few more helpful hints. Kate has good tips on size and quality and her article is well worth the time.