how do you use the headset on halo 3 for xbox360?

step 1: plug headset into controller (there is a gray spot between the handles, directly beneath the xbox button)

step 2: to mute the headset (what you say cannot be heard by other players) pull the switch attached to the headset so it is closet to the circle and slash. To unmute, pull the switch so that it is closer to the picture of a microphone.

step 3: make sure that the volume is up by twisting the wheel (directly below the mute/unmute switch) all of the way to the right, then slowly left until the volume is at a comfortable volume.

step 4: you probably already knew the first three steps, so the fourth step is to realize that not everybody has a mic and that some playlists don't allow communication (lone wolves for example).
 
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