You have to have a glyph space selected, either in the font or glyph view, that FontForge thinks is eligible for compositing (i.e., most ligatures and digraphs, and most but not all accented characters; e.g., fi, fl, oe, OE, ij, IJ, i, j, é, among many others, but not ae and AE for some reason). Furthermore, the source parts for the combined glyphs must already exist.
Then you can select options from the Build submenu.

Under File> Preferences... there is an option to set the accent compositing height. I've been meaning to write to George about that bit. I think it should be in font info rather than the overall prefs, since that may change from one font to another, and it would be useful to have that carried with the particular font.

Ah, I see.

So encoding the font as Latin 1 doesn't seem to give me the option of adding ligatures, but if I encode it as Unicode BMP I do have this option in some spaces.

I loaded Myriad Pro into FontForge just to see where these ligatures were hiding, but I couldn't seem to track them down in the table (I'm sure there's a better name). However, if I load the lookup subtable, FontForge gives me a preview of the ligature.

Where are the ligatures (fi, ffi, ffl, ff, fl, ct, st etc) hiding, and what encoding is generally recommended?

Thanks again

Unicode BMP is the encoding I'd recommend if you're going to output an OpenType font. Naturally you aren't going to fill every one of those slots. As for which glyphs you need, I suggest a union of Latin-1, Latin-0, Macintosh Latin, Windows Latin, and Adobe Standard. Then set it back to Unicode BMP once you're done.

Still, that's kind of a clumsy way to deal with it. This article might prove more useful: http://blogs.adobe.com/typblography/2008/08/extended_latin.html#more.

You will find some of those ligatures in amongst those encoding tables. Some you will have to add in yourself. Some ligatures have no assignment in Unicode. Both those that do and don't should be addressed with OT features.

FontForge has the View>Goto feature that can help you find those difficult to locate glyphs and unicode ranges.

That's wonderful, thanks very much!

Apologies, I have a couple more questions (for now!)

When I install the font and use it in Illustrator (CS1), it seems to make the first character 'invisible'. That is, the first character that appears when I type is the second character that I typed. This problem doesn't occur in MS Word.

Also, I can't seem to get the space character to work properly in either programme (in MS Word, a space becomes Times New Roman and in Illustrator it doesn't appear at all). In FontForge's Metrics window, however, the space displays as it should.

Sorry for so many questions, but you have been very helpful!

hmm... I don't know what to tell you about that. Anyone else?

Hmm, remarkably both problems appear to have fixed themselves after I adjusted the kerning.