Why do the Display XY Data or Add XY Data tools not plot points in the right location?

When using the Display XY Data or Add XY Data tools based on latitude and longitude values from a spreadsheet, one of the most common issues is that points do not appear in the right location. This is due to either using a projected coordinate system, or no coordinate system at all.
Projected coordinate systems (such as UTM and State Plane) provide mechanisms to project maps of the Earth's spherical surface onto a two-dimensional surface, and are mainly focused on small study areas. Since latitude and longitude values encompass the entire globe, a global or spherical geographic coordinate system must be used.

When using the Display XY Data or Add XY Data tools based on latitude and longitude values, always specify the coordinate system as a geographic coordinate system, such as WGS 1984.