Oracle Database Backup and Recovery User's Guide explains how to size the fast recovery area. As a general rule, the larger the fast recovery area, the more useful it is. Ideally, the fast recovery area should be large enough for copies of the data files, control files, online redo log files, and archived redo log files needed to recover the database, and also the copies of these backup files that are kept based on the retention policy.
If your backup strategy includes incremental backups, then add enough space to the fast recovery area for these files. If you can move some backups to tape, then you can reduce the size of the fast recovery area. Note that retrieving files from tape causes longer database restore operations and recovery times.
See Also:
Oracle Database Backup and Recovery User's Guide for information about handling a full fast recovery area