Gems are a bit boggling when you first encounter them. Six different colours, mysterious 'meta' gems, wildly varying prices, and countless combinations of stats and effects. It's much easier to get your head around the system when you see all the different gems laid out on one page — wowwiki's entry is perfect.
Standard gems are really quite dull for shadow priests. Don't be intimidated by the variety. You should only really be interested in two things: reaching the hit cap and increasing your damage.
I've talked about spell hit before. You need 76 with talents. All your gems should be yellow spell hit gems until you hit that figure — great golden draenite, great dawnstone or great lionseye. Pick the best gem you can afford, taking into considerating the item you are gemming. You will keep your frozen shadowweave set for a long time, but that level 69 quest reward may not be around long enough to justify an expensive gem. Uncommond gems are, well, uncommonly cheap, so you never have an excuse to leave a slot empty.
After that, it's red all the way. Anything with runed in the name. The uncommon runed blood garnet if you're poor or are likely to upgrade an item soon; the rare runed living ruby otherwise. If you're rolling in cash, you can even splash out on the epic runed crimson spinel. You will get one of this last variety as quest reward for magister's terrace. If you are a jewelcrafter, you may cut yourself the bop don julio's heart, but you may only have one equipped at a time.
If you have enough slots, you could instead use the orange gems that combine these stats — veiled flame spessarite, veiled noble topaz or veiled pyrestone — but I'm not sure you gain anything by doing so. In fact, I think you might even loose out.
Do not be fooled into meeting an item's gem requirement. The bonus's are rarely, if ever, worth the compromise.
Meta gems are a little more interesting. I say a little, as your aim is still to stack as much spell damage as possible. Any perception of choice you may harbour is purely illusory. But meta gems have some quirky special effects on top of the main stat, which gives them a bit more sparkle, if you'll excuse the pun.
Meta gems, as you probably know, are special gems that can only fit into meta gem sockets and only helms can have meta gem slots. They are not of much practical use to me right now, as I am currently sporting the spellstrike hood. If you aren't raiding tier 5 content you should be too. But I will generously assume you are either saving up for the mats or have found something better.
Additionally, each meta gem has a set of requirements relating to the other gems you have equipped. This limits our choice somewhat. If you have (rightly) stacked red gems, you will be stumped by a meta gem that requires two blue gems to equip. Thankfully, Blizzard has come up with an ideal solution to our quandary as we shall see.
So here are my top three picks for your meta gem, in reverse order.
This can be purchased for 8 spirit shards from the pvp vendors in terrokar forest, which makes it easy or awkward to acquire depending on how lucky you've been with your auchindoun runs. On my server, the region is almost permanently in the hands of the alliance. The spell damage is nice and the run speed, while situational, can come in handy on some boss encounters. It requires two yellow gems on top of a red, which makes it an ideal starting gem if you are stacking spell hit.
If you have reached the spell cap and replaced your hit gems, this is a reasonable choice. Yes, you're right, it's actually a healing gem, but provides 9 spell damage. A little less than the swift starfire diamond but you will more than make up for it by replacing the two yellow gems for red. It requires more red gems than blue, which won't be hard. The beauty of this gem is the 2% reduced threat. If you're one of those annoying shadow priests who never has an issue with threat, this won't be of interest. But for me, it's enough to make my palms sweaty with desire. It is a crafted item, so head over to the auction house and be prepared to fork out a couple of hundred gold. The recipe is from consortium and requires revered.
With 14 spell damage and 2% intellect, this is my top choice for a meta gem. And look: it requires at least three red gems. It was made for us. Again, it's a crafted item and the recipe requires revered with the shattered sun offensive.
Now before you rush off and snap up your gems, I should point out that shadowpriest.com disagrees with my recommendations — and they are, unfortunately, far better informed than I am. They suggest the following:
As you can see, it has a chance to increase spell casting speed and requires more blue gems than yellow. So you can easily get away with one blue gem to activate it. shadowpriest.com recommends either a fluorescent tanzanite or a glowing shadowsong amethyst.
The reason I don't like it? I'm just not certain of the value of spell haste from random procs. I'm still getting used to quagmirran's eye and find that I waste as many procs as I use effectively. Admittedly, a better shadow priest might be able to make better use of it. But right now, for me at least, the jury is still out.