How do you know if a website is safe?

Use the very easy to use, extremely informational, and just a great idea, Firefox extension called SiteAdvisor.

SiteAdvisor setups a small graphic in the status bar of Firefox that will change color depending on the safety factor of the website you are on. You can also browse to the SiteAdvisor archive of the website and get a more detailed report of what they found; from spamming to distributing adware to a virus threat. It also has a nice feature where it puts a small icon near search results in Google and gives you a pass or fail before you go to the website.

I usually shy away from things that send my browsing habits to their servers but they have a pretty good privacy policy and its seems very much on the up and up.

Link:
http://www.siteadvisor.com/preview/index.html