Standard fitting shoulders are almost always the best choice in sweater design. I don't know why so many designers go with a dropped shoulder, with the sleeve and shoulder meeting halfway down the arm. My best guess is that they use it because it's easy to design and easy to knit, but it's so terribly unflattering on most women, and tends to look sloppy even on men and children. Children and men can get away with it, but then children's clothing looks best in a loose fit, and men like looking like quarterbackers. Waist shaping is another mod that makes a lot of difference in how a women's sweater flatters her. I won't go so far as to say it's always advisable for every sweater and every figure, but a little waist definition does seem to be a good idea for most women's sweaters.
Here's a picture of a 1980s era Fair Isle pullover that has a dropped shoulder and does not have waist shaping. And it's a beautiful piece of work, but I can't help mentally reshaping it. Wouldn't it look so much more flattering and polished if the shoulder seams were at the shoulder, if the body was less generously wide and the waist curved in a little, and it weren't belling out over the ribbing at the hipline? Fortunately we at least don't usually see that extra bulk above the ribbing these days.
Now let's look at the nuts and bolts of how a sweater is shaped. The two diagrams on the left are how the Fair Isle sweater shown above might look in diagram, and the two diagrams on the right are for a sweater with the standard fit shoulder and waist shaping I recommend for most women's sweaters. (That is, if the diagrams were the scratchings of a hen that had just walked through ink. Excuse the crudeness of the diagrams. I don't have any software for creating design diagrams and probably wouldn't know how to use it if I did, so I just did them by hand and scanned them in. Believe it or not, this is actually the best of about ten attempts.)
Let's talk about waist shaping first, since it's the easiest thing to do. These directions will work on a most women's sweaters that don't already have waist shaping. The aim is to have a bit of gentle, subtle shaping rather than a fitted waist, but while you'll barely notice the difference in how the sweater feels when worn, I think you'll find that it makes a distinct difference in how it looks.
If the pattern you wish to make has no waist shaping in the directions, begin knitting the back or front of your sweater as your pattern directs, and continue until the piece measures 3" or 7.5cm from the beginning. On the next row, knit one stitch, knit two stitches together, knit to the last three stitches, then knit two stitches together and knit one stitch. If your sweater pattern requires you to purl this row or these stitches, use purl stitches to decrease, or you might like to move the decrease stitches over by a stitch or two. Experiment a little with different ways of decreasing and the position of the decreases, and work your decreases in whatever method best blends into your pattern and looks the least obtrusive.
For a sweater in DK yarn, repeat this decline row once every 1"/2.5cm three times more. At this point the sweater piece should be approximately 6"/15.25cm long and its width will have been decreased by about 1"/2.5cm on each side of the sweater. For a sweater knitted in a finer or heavier weight yarn than DK, you'll need to work the decreases either more or less often in order to taper the sweater in by that 1"/2.5cm within that second 3"/7.5cm of knitting. Do the math as to how many stitches you need to decrease 1"/7.5cm on each side, and how many rows apart they should be in order to get them done by the time your knitting measures a total of 6"/15.25cm or a little more from the beginning.
Once all these decreases have been worked, knit even until your back or front piece measures 8"/20cm from the beginning. Then begin to widen the sweater again by working an increase row: knit one, increase one in the next stitch, knit to the last two stitches, increase one stitch in the second last stitch, knit one. Work this increase row as many times as you worked the decrease row and with the same number of rows spaced between them until you've reached your original number of stitches. Add this waist shaping to both front and back pieces in exactly the same manner so that they will match.
Now let's talk about fixing dropped shoulders. Dropped shoulder styles generally have no decreases at the armhole, as in the case of the diagram on the left above. You'll need to add these armhole decreases to the back and front of your sweater to make the sweater the right width at the shoulders. I suggest that you refer to diagrams and instructions from another knitting pattern that does have shaped armholes and use them as your guide. I have one particular all-time favourite sweater pattern that's just the right shaping for me (I've made it twice as is because it's so very flattering) and I usually refer to its diagrams whenever I want to reshape a sweater. Alternatively, if you have an existing sweater that fits just right at the shoulders, measure the width of the sweater at the shoulders and calculate the number of stitches you'll need to decrease from the width through the body of the sweater you are making to get that ideal shoulder width.
Once the back and front are taken care of, you'll then need to adjust the sleeves to fit. As you can see from the two sleeve diagrams above, there's a big difference in how they're shaped. You will need to be make the sleeves longer than your original pattern says in order to compensate for the fact that the shoulder will no longer extend down the arm, and you will also want to shape the cap of the sleeve to fit the shaped armhole. If you used another sweater pattern's diagrams as your guide for the armhole decreases and shoulder width, then you should also use that pattern's sleeve diagram and measurements to get the right specifications for your sweater's sleeve length and cap shaping. If you took your measurements from a finished sweater, measure that sweater's sleeve and shape your project's sleeve in the same way.
While you're doing all this reshaping, you'll also have to watch out for any colourwork or stitchwork that you're displacing/removing and make sure that the patterning still lines up the way it should. Some elaborately patterned sweaters, such as picture knits, may not lend themselves to reshaping because you'll have to cut out a crucial part of the picture, but usually you'll find a way to do it.
I hope these tips are of use. I found this post difficult to write because although I wanted to give very clear instructions as to how to shape a waist and fix a dropped shoulder, there are so many possible variables in yarn weight and sweater sizes that it seemed to me that more specific instructions would be of very limited use, and might even lead some knitters astray. Making your own mods always means that you must wing it a little. Make your calculations based on the stitch gauge for your particular project, the measurements of the wearer, and the measurements of the desired garment in order to figure out just how your waist, armholes and sleeves should be shaped.
Happy modifying, and may your project fit and flatter when you're done tinkering.
