Here are some tips for surviving with as few problems as possible.
There are a few good ways to conserve ammo.
The knife is your best friend, either when you're low on ammo or not. If you feel the need to compulsively conserve every bullet you can, learn to fight with this. There are some good tactics that can make the knife astoundingly useful.
If you're fighting a regular enemy one on one, you easily kill him without firing a shot. If he's holding a weapon, let him approach and begin to attack. When he's starting the swing, start walking backward (if he's holding a pitchfork, you'll have to back up much farther, so it might not work every time). There will be a delay during which the enemy has to regain his balance. While he's doing that, run up, arm the knife, and slash him in the face. He'll clutch his eyes and stagger around. Dash close, and the "Kick" option should appear. Kick him, and start knifing while he's down.
If there are several enemies around, try and position yourself so only one can attack you at any given time (preferably find a bottleneck somewhere where only one enemy can get through at a time). Follow the strategy above, and when you kick him every other enemy nearby will be knocked back, giving you some time to either attack the guy on the ground or, if some enemies are still standing, retreat to a better location.
A non-combat use for the knife is setting off some traps. The bear-traps, especially, can be set off if you get close, aim at them, and slash with the knife.
If you are lucky enough to have a ladder around, climb up the ladder and stand near the end. What you do now is simply knife everyone who tries to climb on the ladder. They will fall back to the ground and try to climb on the ladder again. Keep knifing until all enemies are dead.
If you don't feel confidant with your knife skills, you can replace part of the above strategies with single shots from the handgun. Instead of slashing at their face, you can either shoot at their face (which has the same effect as slashing) or their knee/shin. If they get shot in the leg, they'll drop to their knees, where you can either do a variation on the above kick, or a suplex, which is extremely powerful and may instantly kill them.
Against multiple enemies the same strategy applies, but try to only shoot for the head. If you do the kick that comes from shooting them in the head, it will have a great chance of knocking every other enemy over. The other kick will very likely only knock down the one enemy, and the suplex will definitely only hit one enemy, and leaves you open for a few seconds to an attack.
If you're facing a large group of enemies and can't get close enough for kicking (for several possible reasons, one being maybe many enemies have weapons and are attacking one after another), you can use a well-placed shotgun blast to give you some time. Run around until the enemies are grouped as closely as possible, then turn to fight. Arm the shotgun and aim for the head/neck area of the front-most enemy. Wait for them to get close (maybe even until the front enemy begins to attack), then fire. Most enemies should be blown back (maybe killed, at least floored), and any others will at least be knocked back to a fair distance. You can then switch to knife or pistol strategies to mop up the rest.
The proverbial long-distance weapon. Try not to use this in close quarters, because its slow turnover rate makes it a huge liability. The units of ammo you will find are generally very small, but it usually only takes one well-placed rifle shot to kill an enemy, so you don't feel the pressure too much.
It should be pretty obvious, but the Hand Grenade and Incendiary Grenades are good to use when conserving ammo and taking on large groups, since they're generally fairly commonly found. Flash Grenades would be good for stunning crowds in order to escape, if you don't feel like fighting. They also have the added bonus of being able to kill certain Plagas-carrying Ganados instantly.
However, like mine thrower, the only and perhaps the fatal flaw of this powerful weapon is the lag time to detonate it (usually takes about 2 to 3 seconds). Therefore when there is a group of enemies marching towards you, you have to throw the Grenade at the tip of the group so when it sets off it will be in the middle of where it will give you the most casualties.
For the most part, you will be fine as long as your health is in the green, or even high yellow. You probably don't need to heal until you drop into low yellow or red.
When you're in the farm area of the Village section of the game, keep a look out for chickens. They will, if left alone long enough, lay eggs that can be used for healing. There are three levels of egg, Regular, Brown, and Gold, each successive level better than the last. Since each egg is only one block in the inventory you can stock up on a lot of eggs and save some room. There are some chickens in the initial Village area, but they tend to lay eggs slower (or not at all). Extra tip: You can equip eggs and throw them at enemies. If you hit their face it acts much like a knife slash. Not very useful (especially compared to the healing abilities of an egg), except maybe if you can't get close enough to stun them without getting hit, but fun to watch.
Yellow Herbs raise your health bar by a small margin. Use them as soon as you can. You can combine them into another herb so that you can just use the combination when you're low on health and you'll just get a boost to go with the healing. No real difference, but it'll let you forget about it and focus on the rest of the game and still have it happen.
In a couple of sections near the beginning of the game, you can fish some and get a few fish. They act a lot like the eggs, with low level fish, middle level fish, and high level fish. There really isn't much difference, except that they take up a lot more room (especially the highest level). If you're low on health at the time you find them, though, they can be good free health. You just have to either shoot or knife (if you're really close) them to pick them up.
General Gameplay Tips
Buy Only What You'll Use
You won't find infinite amounts of money throughout RE4, and as such it forces you to keep a rather tight budget. Therefore, when you get the opportunity to buy things from a merchant, only buy the things you'll use. It doesn't matter if the Red 9 is a new gun--if you won't use it, don't buy it. The only things this doesn't apply to, obviously, are things like the Punisher (which is free after completing a certain task)
The corollary to this, of course, is sell what you don't need. The attaché case has only so much room, and if you don't use something like the Handgun any more because you prefer the Punisher, then sell it and use the money it nets you for something else.
Be Aware Of Ashley
When you find Ashley, you'll be saddled with an extra responsibility, for she is extremely fragile. While she does duck when you raise your gun to shoot, she doesn't always do it immediately, and one bad shot will kill her instantly and give you a game over. Also, she can be carried off by enterprising villagers/cult members/commandos, and if you let them get away it's also a game over. You can stop them, however, with a bullet to any part of their bodies, which will cause them to drop her. Be aware of where she is at all times. Ashley can easily die instantly if you put her in the way of enemies, if you back up while a Ganado is trying to attack Leon and Ashley is right where you stand, it would kill her (if the bar is yellow or red), so be careful.It is always helpful if you put her out of harms way.
Extra Tip: In certain areas in the game where there is a large empty bin available, use it as a hide out place for Ashley while you fight off the wolves. This is especially useful when you are faced with a large group of enemies. Just don't forget to call her out when fight is over.
She, too, has a health bar, and you must heal her as well, so be careful of the strain on your healing items.
In the game you can mix herbs. You can mix two green herbs to get a boosted total effect beyond that of two separate green herbs, and you can mix three green herbs to restore all health. Use two green herbs when your maximum health is lower and use three green herbs when your maximum health (as increased by yellow+green herbs) is much higher. You can mix yellow green and red herbs to increase the same amount of three green herbs. Herbs can be found all over the levels. Enemies will sometimes drop a single green herb when your health is low and you're carrying no healing items.
Rubber band effect
Resident Evil 4 uses something called Dynamic game difficulty balancing. What this means is that the game tries to adjust its difficulty according to how well you're playing. The idea behind it is to make the player's experience interesting and challenging without being either frustratingly hard or boringly easy. It's actually rather unusual for games to implement a system like this, but what's even more unusual is that in this case is that it had little publicity; in fact the only official acknowledgement of it was in a strategy guide published well after the game was released. The system is designed to be invisible to the player, and most players will complete the game without noticing its effects.
The way it works that the game has an internal difficulty level from 1 to 10. The difficulty level Normal/Professional you choose at the start of the game determines where the internal level starts, but the internal level changes according to how well you're doing. For example, if you use a few continues, keep taking a lot of damage, or keep missing your targets, the game will respond by dropping the internal difficulty level. But if you consistently avoid these things the game raises the level. The noticeable effects of the internal difficulty level include how fast enemies attack and how much damage they do, the contents of containers such as boxes, and whether certain enemies appear. A well documented example (see Mark Brown's video on this topic) is in the Water Room in chapter 3-1. If you've been playing very well then archers appear on the balcony to harass you while you deal with the zealots at ground level, but most players won't see them.
Knowing about this system, you can obviously game it by deliberately playing poorly in some parts to make other parts easier, but that's not our intention here. Instead we'd like to offer some advice on how to work with the system to get the most enjoyable gaming experience.
First, avoid excessive reloads. If you make a stupid mistake then it is tempting to reload your last save, especially if it was recent, so you can get a mistake free run. But the game responds to such perfectionism by making itself more difficult, making it harder and harder to avoid these mistakes. So use continues and herbs when you need to and save yourself frustration later on. Reloads do have their place, for example if you want to try out a tactic, but the game will, in effect, punish you if you use them too much.
Second, use appropriate firepower. This would be good advice anyway but the way system works makes it doubly important. For example, if you consistently use a shotgun to quickly dispose of the relatively weak Ganados, then the game responds by giving you less shotgun ammo and more of the weaker handgun ammo. That means when it's time to fight a more difficult enemy you won't be able to use the shotgun. So if you get to the Mendez battle with 500 handgun rounds and nothing else then it's an indication that you need to change your tactics. The upshot is that the weapons you choose should make every encounter a challenge, not just the bosses.
Third, buy weapons to match you skill. But example many players despise the TMP because they don't get ammo refills for it. But the frequency of these refills seems to be a function of how well you're playing. So while it's true that for some players the TMP gets so few refills that it's not worth the inventory space, the only way to tell if that's true for you is to try it yourself.
Fourth, don't think the game will lose it's challenge on the second playthrough. Since the game makes itself more difficult if you play well, the skills you've developed the first time through don't allow you to just breeze through the next time. The game reports statistics such as the number of enemies killed, and improving these scores should keep the replay value going for a long time.
Finally, don't get discouraged if you realize the game is making it easier for you. This is a tough game to master and no one will do it on the first run, so just accept the help for now and do better on the next run.