Several Oracle environmental variables are utilized by various Oracle tools. Most of these variables should be defined in the databases primary users .profile. The following is an example.
umask 022 ORACLE_BASE=/u01/app/oracle ORACLE_SID=MYSID ORACLE_HOME=$ORACLE_BASE/product/10.1.0/db_1 ORACLE_PATH=/u01/app/oracle/product/10.1.0/db_1/bin:. #( Oracle version of $PATH) TNS_ADMIN=$ORACLE_HOME/network/admin #(Oracle Net Services config files)
The most important variables here are ORACLE_SID and ORACLE_HOME. If these aren't defined you'll have problems all over the place, namely when trying to use SQLPlus.
You can find a full list of all supported environmental variables in the documentation. (http://download-west.oracle.com/docs/html/B10812_02/chapter1.htm#sthref23)