Familiarize yourself with the position. Get a copy of the job description, if you can, and talk to the person you will recommend. If you know the intended recipient of the letter, ask them about the position as well. The more you know about the position, the better you will be able to tailor your letter to suit the needs of both parties.
Don’t exaggerate -- show where and how they can improve. Don’t put the candidate on a pedestal. Not only does it not look plausible, it will also set expectations for them that will be next to impossible to meet. If they have an Achille’s heel, don’t exaggerate it, but don’t hide it, either.