Open up Google Now ( swipe up from the bottom). You'll end up in ....Google Now ... a search bar with a microphone to the right. Hit the settings menu ( 3 vertical squares) on the bottom right. You may have to scroll up a bit.
Make sure you have the correct language chosen here. Makes a big difference to how accurate it recognises your voice. English (US ) was shite, but once I'd change to English (Australia), then recognition was much better.
Do note thought that you can't use the "Detect Hot Word" i.e. say "Google" to activate unless you've got it set to English(US). No biggie, but confused the *&(k out of my for a while