Does your work-in-progress have too many words? Or too few?
It's a hard question to answer. Over the last decade of my writing I've run into a lot of "too long"/"too short" situations, and after I saw this interesting little piece for copywriters about how cutting more words might not be such a good idea, I thought I should write a bit about it. I'm going to try to put this in terms of different examples I've seen and/or experienced myself.
What you might find yourself saying: "I have this novel, and yeah, it's 350 thousand words long..."
This one is hard to diagnose. Chances are there's more than one thing going on (see "Long Experiment" below). When I wrote my mega-work, I was astonished to find that my first thorough revision cut out thousands of words, and put thousands more back. The total word count barely changed, because I was figuring out where the words really needed to go. An agent gave me great advice: "This is probably three books." It had other problems that needed editing, but guess what? It's three books.
The Short Experiment
What you might hear critiquers saying: "I have a hard time accepting your premise"/"You're doing too much telling"/"You're gesturing at the story"
This one is probably too short. I'm not saying that pieces like this don't sell (I've seen at least one in Analog!). However, if the premise isn't sticking, you may not have used enough words to flesh it out and give it a strong foundation. If you're being accused of "telling" or "gesturing" you may want to get closer to the story and dramatize more of it. Make sure you're not just talking out the message of your story, but enacting it by placing readers in scenes that demonstrate the truths you want to capture.
The Voice Piece
What you might hear critiquers saying: "I love the voice in this one"/"The thing that really worked for me was the texture..."
Be very careful about cutting words out of this one. Yes, there may be words you can cut (I just took a piece like this down from 8300 to 8000 words), but make sure that you're keeping a close eye on which words are contributing to voice and texture at the same time they contribute to plot and character. Those are going to be the ones you'll want to keep. Of course, there are more stripped-down voices out there - in the case of a stripped-down voice, the process of going through and identifying which words contribute to the voice might be a really good way of figuring out which words can be cut.
The Long ExperimentWhat you might hear critiquers saying: "I'm hearing refrains (repetitions) in your work"/"You're always saying the same thing more than once"
Sometimes I'll use words to feel my way into a piece. I used to do this a lot more when I was first writing and exercising my storytelling muscles, seeing how beautifully, dramatically, etc. I could describe something. One indicator of refrains is when you find yourself using comma-delimited phrases like "Her hair was soft as summer, as all-encompassing as the sea." There's nothing wrong with that, necessarily, but you've just described her hair twice. Which one works better for the story context? You should probably keep that one and leave the other one out. The same thing can also happen across sentences or even paragraphs - you might find that you're both telling and showing, like saying, "He was shocked. His face went white, and his hands shook." In this case, if his face is white and his hands are shaking, it's evident that he's shocked and you don't need to state it explicitly.
What about publishers/agents and their word count guidelines?
This is a tricky one. What I've found is that ideas typically come in different sizes. There's the idea that's naturally flash (<1000), or short (<7500), because if you look at it for too long things will start poking out that detract from the effectiveness of the idea. There's the idea that wants to be a novelette (<10K), because just talking about events isn't enough. There's the idea that wants to be a fast-paced novel (60-75K, common for YA); there's the idea that wants to be epic (100-120K). Within that, however, there is a lot of room for wordcount-wiggling. A lot of words can be cut if you just go through saying "I need to take out 30 words per page" (you'd be surprised)! Those are word cuts on the sentence level. If you're 30 thousand words over your target count, though, then it's best to consider the story structure as a whole, and see if you're putting a lot of words on tangents or subplots instead of sticking to the backbone conflict of the tale.
In the end, it's all very dependent on the individual story. Listen to your audience to get clues about where and how you're hitting them. And it may turn out that you need to cut words and add words, because you needed those words; they were just the wrong ones.
You just have to try it and see.