I have decided to buy an older worn down bike and fix it up as my commuter. What things should I look for? I know I should check the frame for rust. But, that's about it. For example, is it easy to get a good condition cassette for an older bike? Or, should I try to find a bike that already has one? Advice like that.
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Check for something that has easily available parts. If you buy a bike that's too old, then new parts won't fit on it properly, and you'll have to either find old parts in good condition, or pay more for parts because they aren't made in high volume anymore. I guess if you're talking about a commuter, then it's going to be a road bike. Make sure that it has 700c wheels, or can accomodate them. Otherwise, finding 27 inch wheels and tires can be a bit of a pain.
A badly rusted chain is a sign that the bike has been left outside for extended periods with minimal maintenance, and is therefore a bad sign. A little rust on the chain, or on scratched spots on the frame, however, is not a deal-breaker.
Spin all the bearings and make sure they turn easily and smoothly.
Check that brakes and shifters operate -- the cables aren't rusted to where they don't work.
Learn to observe the rear dropout as an indicator of bike quality.
Rust on the frame will be the least of your worries. By the time a frame shows significant rust, all the moving parts will be completely unusable.
Check if the rims are true. On a lot of old bikes, the wheels are crooked as hell. Lift the bike, spin the wheel, and watch the space between the rim and a brake pad. A little wobble is fine, but if it's more than a few millimeters, it's probably beyond fixing.
Bearings: hubs, bottom bracket, pedals, headset. Do they spin freely? Is there any play? Do they make noise?
Check the condition of the chain. You're probably thinking: "a chain is easy to replace, what do I care if it's a little rusty?" Well, if it's so easy, then why didn't the previous owner do it? It's an indication that all the other stuff wasn't maintained either.
Brakes. Are the pads worn down? Do they move freely when you squeeze the lever? Are the pads rubbing on the tires (if so, replace the tires immediately!)
Tires. Check for worn tread, also check for dry and cracking rubber.
All the advice given by the other responders is sound.
I'll tell you about a bike that I got off Craigslist before I really knew anything about bikes. It was an early-80's Trek road bike. Externally, it looked OK. Some paint scrapes, a little rust-- on top of the top tube, around the cable-routing braze-ons, for example-- but it was a nice bike, back in the day. Expensive when first sold, and not quite cheap when I got it.
What was wrong with it? The wheels were true, but they had a hop, like a high point (the rims were out-of-round). The bottom bracket turned out to be shot. There was internal rust in one of the seat stays that prevented the Weigles Frame Saver I sprayed in there from passing all the way through. The saddle was cr@p. In order to get the bike ready to ride, I had to get new wheels, a new bottom bracket, new cranks (I stripped the threads on the non-drive-side crank when trying to remove it), new tires, and a new saddle.
But I learned from the experience, just like I learned a lot from my first car, which was a really bad car from the mid-1970's.
If you're looking for a road bike, you should keep in mind that not only the wheel size has changed (from 27" to 700c), but so has the spacing between the rear dropouts. So unless you really appreciate vintage road bikes, you probably want to stick to something with at least 8 cogs on the rear cassette. That's not to say that all road bikes with fewer cogs are not good. I have a 1983-vintage road bike with a Japanese frame, really nice quality, and 27" wheels which I have put about 1400 miles on. It's a sweet bike. But the freewheel has 7 cogs, and if I ever want to upgrade it to brifters (from downtube friction shifters) it won't be hassle-free.
If you're looking for a mountain bike or a hybrid, you should know that vintage freewheels are getting expensive, so I would probably be looking for something with at least 8 cogs on the cassette, as well. You can get some really good buys on 1990's vintage mountain bikes off Craigslist, especially if you're patient. Too, early mountain bikes had bolt-on wheels, which means you need to carry a wrench in case you flat. So if I were buying one, I'd probably look for one with quick-release skewers instead of bolt-on wheels.
If you want quick responses to particular bikes listed online, you may want to try posting links here or over at BikeForums in the C&V forum. C&V gets a lot of traffic, and there are some very, very knowledgeable folks there. Were you to post links to, say, half-a-dozen bikes you're looking at on eBay or Craigslist, you'll get some quick feedback regarding what is wise and what is unwise. In this way, you can benefit from some of the experience of more seasoned folks.