For any band trying to gain more exposure and better gigs a great demo CD is absolutely vital. If you have a set of songs that can really catch a listener and you record them well then it'll make all the difference and could really push your band into areas where you could never go before. Unfortunately many bands don't realise just how important their CD is and end up rushing it or doing a bad job and ultimately sell themselves short. I've seen many local bands live who I've been impressed with and bought their CD only to be disappointed when I listen to it.
The first thing to get right when deciding to record your music is to choose the right songs. Remember it's not about what songs you think are best, but what songs everyone else thinks are best. When you give your recording to a record company representative or a club owner they won't give you much time and so you need to get their attention right away. Generally you'll get 20-30 seconds to make an impression. If they don't like it beyond that then your CD will just get stopped and they'll move on. It seems harsh but that's the simple reality of it when a person has hundreds of bands to listen to, they just don't have time to listen to the whole recording.
With this in mind the first song on your CD is absolutely vital. Don't put any intro tracks on there, and don't pick a song that starts slowly and takes a while to build up. Record company people just won't have the patience to sit through it so it's a waste of time to put it on there. Those kind of things are much better suited to full length albums and live shows. The purpose of this recording is to say, hey this is us and we rock. Make sure that first song is your most catchy and accessible, and get to the singing and the chorus quickly. You'll need to show why your band is unique and great in the first thirty seconds of the first song.
As a guitarist it may pain me to say it but the singing is far and away the most important part of your music. There is no disguise for a poor singer while average guitar work can be overlooked if the singing is really great. Above all else, on the recording make sure you get the singing just right. Mix it loud enough so that it's clearly audible over the music, I've heard too many bands bury their vocals in a wall of guitars so make sure it isn't a mistake that you repeat.
I would generally recommend three songs for a demo CD, it feels about the right length and should give you enough time to show people what you can do and what you're about. Making sure that the first song is really accessible and your best one, it's important and so is making sure that the second matches the quality of the first. If you've managed to keep someone listening through the first song then the second must establish your sound and show that you aren't just one hit wonders. These two first tracks must sum up your general sound and give a club owner a good idea of what to expect when they book you to play.
For the third track I would maybe experiment a little and try a song that is slightly different. For example if you're a heavy rock band I'd maybe put a quieter track as the final one to show that you aren't just one trick ponies. The third can show your depth as musicians and that your band has more than just one dimension.
Recording a demo CD can be difficult and many fail before a note has been played. Make sure that you know what your intention is with yours and who you intend to give it to. Recording the right songs will make all the difference, as will arranging them correctly on the CD. Good luck with recording and hopefully people will sit up and take notice of your next demo CD.