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What is normalization? Explain different levels of normalization?

Check out the article Q100139 from Microsoft knowledge base and of
course, there's much more information available in the net. It'll be a
good idea to get a hold of any RDBMS fundamentals text book,
especially the one by C. J. Date. Most of the times, it will be okay
if you can explain till third normal form.

What is denormalization and when would you go for it?

As the name indicates, denormalization is the reverse process of
normalization. It's the controlled introduction of redundancy in to
the database design. It helps improve the query performance as the
number of joins could be reduced.

How do you implement one-to-one, one-to-many and many-to-many
relationships while designing tables?

One-to-One relationship can be implemented as a single table and
rarely as two tables with primary and foreign key relationships.
One-to-Many relationships are implemented by splitting the data into
two tables with primary key and foreign key relationships.
Many-to-Many relationships are implemented using a junction table with
the keys from both the tables forming the composite primary key of the
junction table.

It will be a good idea to read up a database designing fundamentals
text book.

What's the difference between a primary key and a unique key?

Both primary key and unique enforce uniqueness of the column on which
they are defined. But by default primary key creates a clustered index
on the column, where are unique creates a nonclustered index by
default. Another major difference is that, primary key doesn't allow
NULLs, but unique key allows one NULL only.

What are user defined datatypes and when you should go for them?

User defined datatypes let you extend the base SQL Server datatypes by
providing a descriptive name, and format to the database. Take for
example, in your database, there is a column called Flight_Num which
appears in many tables. In all these tables it should be varchar(8).
In this case you could create a user defined datatype called
Flight_num_type of varchar(8) and use it across all your tables.

See sp_addtype, sp_droptype in books online.

What is bit datatype and what's the information that can be stored
inside a bit column?

Bit datatype is used to store boolean information like 1 or 0 (true or
false). Untill SQL Server 6.5 bit datatype could hold either a 1 or 0
and there was no support for NULL. But from SQL Server 7.0 onwards,
bit datatype can represent a third state, which is NULL.

Define candidate key, alternate key, composite key.

A candidate key is one that can identify each row of a table uniquely.
Generally a candidate key becomes the primary key of the table. If the
table has more than one candidate key, one of them will become the
primary key, and the rest are called alternate keys.

A key formed by combining at least two or more columns is called
composite key.

What are defaults? Is there a column to which a default can't be bound?

A default is a value that will be used by a column, if no value is
supplied to that column while inserting data. IDENTITY columns and
timestamp columns can't have defaults bound to them. See CREATE
DEFUALT in books online.

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SQL Server architecture (top)

What is a transaction and what are ACID properties?

A transaction is a logical unit of work in which, all the steps must
be performed or none. ACID stands for Atomicity, Consistency,
Isolation, Durability. These are the properties of a transaction. For
more information and explanation of these properties, see SQL Server
books online or any RDBMS fundamentals text book.

Explain different isolation levels

An isolation level determines the degree of isolation of data between
concurrent transactions. The default SQL Server isolation level is
Read Committed. Here are the other isolation levels (in the ascending
order of isolation): Read Uncommitted, Read Committed, Repeatable
Read, Serializable. See SQL Server books online for an explanation of
the isolation levels. Be sure to read about SET TRANSACTION ISOLATION
LEVEL, which lets you customize the isolation level at the connection
level.

CREATE INDEX myIndex ON myTable(myColumn)

What type of Index will get created after executing the above statement?

Non-clustered index. Important thing to note: By default a clustered
index gets created on the primary key, unless specified otherwise.

What's the maximum size of a row?

8060 bytes. Don't be surprised with questions like 'what is the
maximum number of columns per table'. Check out SQL Server books
online for the page titled: "Maximum Capacity Specifications".

Explain Active/Active and Active/Passive cluster configurations

Hopefully you have experience setting up cluster servers. But if you
don't, at least be familiar with the way clustering works and the two
clusterning configurations Active/Active and Active/Passive. SQL
Server books online has enough information on this topic and there is
a good white paper available on Microsoft site.

Explain the architecture of SQL Server

This is a very important question and you better be able to answer it
if consider yourself a DBA. SQL Server books online is the best place
to read about SQL Server architecture. Read up the chapter dedicated
to SQL Server Architecture.