At Admin Panel -> Settings -> Switches, the "terms of service on registration" switch enables a checkbox which people are forced to check to indicate that they agree to the terms of service in order to complete their member registration. You can use this if your lawyers want the TOS to be binding, or turn the switch off if you don't want to bother people with it.

To edit the terms of service to your desired legalese, go to Admin Panel -> Members -> Member Settings -> "Terms of Service:". There's also a terms of service template at Admin -> Themes -> Manage Templates -> "Terms of Service" which acts as a simple wrapper around the terms of service text. The terms appear in a popup window when the link is clicked from the registration page.