Baking is the process of projecting the details from a high poly or sculpted model onto a UVW unwrapped low poly model. This creates a 2d texture known as a normal map, which essentially contains detailed height information within it allowing the low poly to appear highly detailed as it reacts to lighting and shadows. A industry standard baking software, called xNormal, can create these maps as well as others such as ambient occlusion, vertex color, cavity maps and many others. Your high and low poly must occupy the same space for baking to work otherwise you will end up with errors where your projection "misses" or is even projected onto the wrong area of the low poly.
.Obj and .FBX export types are the best methods to export your model from 3ds Max. Be aware of your smoothing group information on your lowpoly export. For soft objects you want your smoothing groups set to the same group. For hard surface objects you want to make sure you set up your smoothing groups to have creases in the appropriate areas. Otherwise errors will show through in your bake in the form of surfaces and edges that look like they are bending.
These settings will work for an .Obj export:
Baking ambient occlusion in xNormal
Note: When baking ambient occlusion, for best results leave the maximum frontal and rear ray distances at or near default values (0.5). Also, make sure that ignore per-vertex-color under high definition meshes is checked on.
Other useful tips for exporting from 3ds Max to xNormal