There are many ways to prepare the ground. Which one is suitable, depends on what kind of soil you are starting with, how much space you have, and on what kind of plants you intend to grow in the target area. I will try to organize them in a logical manner for you.
If the dirt is poor in some way, you have some options. You can spade,shovel, or till in some compost or peat, which will improve the texture and nutrient level of the dirt. You can add a commercially prepared fertilizer. You also can build a raised bed.
FOR A SMALL AREA
For a Mid-Sized Area
For a Large Area
This will leave an area which is lower than the surrounding area. If your dirt is pretty good (you can get it tested at your county agricultural extension office), go ahead and leave it. With an indentation in fairly good dirt, it is quite convenient since the water won't be running off all over the place!
If you build a raised bed, you won't need to shovel up the grass since you will be putting at least 6" to a foot of good dirt on top of it. That will kill any grass under there with lack of light.
To improve the texture and soil nutrient level, compost or peat mixed into the soil is your best bet. Over the years, the poorest clay or sand "junk" can be turned into a fertile, loamy garden.
You can also put down commercial fertilizer, which is quick and easy, but compost lasts much longer while improving the texture of the dirt. There are other options, too numerous to discuss in detail. These include spraying Miracle-Gro on the plants, which feeds through the leaves as well as the ground, planting things which will grow in poor earth, and even burying fish under the plants!
Good luck and happy gardening.
Shop weatheraffects.com for the best weather stuff on the net!