Area - ideally it should be somewhere that you have an interest in. There might be reasons to pick on somewhere completely different, but it makes more sense if you choose a place that that you or your ancestors have a connection with.
Knowing your boundaries - or more correctly those of your chosen place. It is important to have an idea of how big a project you are thinking of taking on and there is no reason that you can't start small (a smaller area or a defined period in time) and expand things as you have more experience. Too big a place at the outset may overwhelm you and your available time.
Do records exist - researching the history of a place that only existed for a brief period of time may prove much harder than a place with a longer history and a relative diversity of industries, organisations and people.
Dr. Janet Few's book - Putting your Ancestors in their Place: a guide to one place studies mentioned in Alex's blog entry below (O is for One-Place Studies) also has some useful tips and suggestions on choosing your study place.
Don't forget to register and publicise your study - the Society for One-Place studies website includes details of all studies our members have registered, but using social media such as Facebook, telling local connected organisations such as local history societies may gain you valuable information that is not available elsewhere for example oral history, family photographs and diaries.
I chose my place (New Fishbourne, Sussex, UK) on the following criteria - various branches of my family lived there, the place was about the right size (c300 people in 1881), it was more rural than a town or a city (that was just a personal preference), I knew a little about the place (I've learnt a lot more since!) and where different records existed (ok, I sort of trusted that one rather than checked). I'm happy with my choice and enjoying finding out more and more.