Annotate relies on a configuration file, annotate.conf for everything that is supposed to be tweaked by the user. To generate an initial configuration, Annotate is shipped with an interactive Perl script. It will ask you a few questions about the most important things to configure and will create an working (hopefully) configuration.
So the first thing to to is to run the installation script:
./install.pl
Put the resulting file (annotate.conf) into the /usr/local/etc directory. If you can't put it there, please refer to the section called “The right place for the configuration file” for details.
For a complete list of configuration options, please have a look at Chapter 3, The annotate.conf configuration file.