Saffron is precious. And yet most people just toss it straight into the pan, where it then releases only a third of its flavor and color. What a waste.
A dry saffron thread contains three plant compounds: crocine (the deep golden-red color), picrocrocine (the slightly bitter undertone), and safranal (the honey-like, hay-like aroma). Only when you steep the threads in liquid (this is called blooming) do all the aromas emerge. If you skip this step, you'll see specks of gold in your rice instead of a deep, even hue, and most of the aroma will remain in the threads, instead of being distributed throughout your dish.
There are several ways to extract the flavor from saffron:
Hot water (the classic). Steep threads in a spoonful of hot water (70-80°C, not boiling) for 10-30 minutes. Both the liquid and the threads then go into the dish.
Broth or cooking liquid. Ladle a spoonful from the hot broth of your paella, risotto, or soup. Let the threads bloom in it, then return the broth to your dish.
Warm milk or cream. For sweet dishes (kheer, ice cream, panna cotta) and biryani. Fat carries aromas more intensely than water, so heat the saffron threads together with your warm milk or cream.
Ice cube method (Ottolenghi trick). Put the threads with a pinch of salt in a mortar and place one ice cube on top. This melts slowly, and the cold extracts the flavors from the saffron. Once melted, mix the water with the saffron using the pestle. According to many chefs, this method gives a deeper color than hot water.
Extra trick for EVERY method: first toast the threads for a few seconds over low heat until they are brittle (don't let them burn!), crumble them between your fingers or grind them finely in a small mortar, and THEN bloom them. The aroma will be much more intense.
Always use a light-colored bowl or cup so you can see the color change. That moment when the water turns golden yellow, that's what you buy saffron for ;-). And that way you can immediately see if the quality of the saffron is good. The water should color slowly, but acquire a deep color, while the saffron threads themselves also retain their color. The water doesn't turn red, but rather golden yellow. If your water turns red, you know you're dealing with fake saffron.
The scent of real saffron is complex. Hay, honey, something floral. Does it smell too sweet/perfume-like or musty? Then the threads may have been treated with something else, for example with turmeric for extra color or with honey or sugar for extra sweetness. Or you might have safflower, a cheap 'fake' variant of saffron.