The best practice for georeferencing a CAD dataset is to use the Georeferencing toolbar. The toolbar includes interactive tools to help you nudge the dataset into place as well as precision tools for registering control points to specific geographic coordinates.
To display the toolbar, right-click the main menu bar and click Georeferencing from the context menu.
The following sections are organized as a guide in the order of a typical georeferencing workflow. The methods you ultimately use and the order in which you perform them can vary depending on your data.
Choose a georeferencing layer
All commands and tools on the toolbar act on the CAD feature layer you select from the drop-down list. You can choose any CAD feature layer in the map that derives from the same dataset—the transformation is applied to all child feature classes. Once you have georeferenced a CAD dataset you can add its feature classes to the map document at any time and they are constrained by the same control points.
Move the dataset to the current view
If the CAD drawing's origin coordinate (0,0,0) is significantly different than the map projection in your data frame, the CAD dataset may be added outside your data extent. When this happens, Zoom to the destination area and click Fit To Display on the drop-down menu. This shifts and scales the dataset to fit the current view regardless of where it is located.
Rotate, shift, or scale the dataset
In some cases, nudging the dataset into place before adding control points can help you complete the task more quickly. The Rotate, Shift, and Scale buttons allow you to manipulate the dataset without using control points. You can use the pointer to drag the dataset, or type a relative value in the text box and press ENTER.
Add control points
Adding control points is the best method for controlling the precision of your georeference. Control points give you the ability to snap to specific CAD features and snap them to features in your control data. You can also right-click after clicking the from-point, and type its destination as x-y coordinates or in degrees, minutes, and seconds (DMS).
To start adding control points, click the Add Control Points button 
on the toolbar.
You can modify their numeric values as you create them with the Link table. To open the Link table, click the View Link Table button 
on the toolbar.
Apply the transformation
After adding control points manually, or loading them from a world file, you have two ways of applying the transformation and georeferencing the dataset—both commands are available from the drop-down menu.
The Update Georeferencing command saves the control points to a world (.wld) file and then applies the transformation. It opens a dialog box in which you must name the file and click Save before proceeding with the transformation.
The Update Display command applies the transformation immediately. Saving the map document after using this command saves the control points in the map (.mxd) document. This command is also useful to preview a transformation followed by the Reset Transformation command.