Soil preparation is one of the most important factors in establishing a lawn. How well the soil holds water and allows the grass to develop its root systems is determined by the condition of the soil.
Breaking up the soil will aid in air flow and allow nutrients to reach the roots. Grass grown on hard packed ground will use more water and be less drought resistant. Unfortunately, sod that is installed on unprepared ground will develop a shallow root system and will use increasing amounts of water.
As a general rule, add 4 cubic yards of organics per 1,000 sq. ft.
Soil amendments, such as organics, are vital to improving the water holding capacities of the soil.
Adding compost to the soil will dramatically increase its ability to hold water. How much water your lawn needs is directly related to how much organic matter is in the soil.
When adding organics, remember that organics can be "hot" and actually burn up the roots of the new sod if not mixed into the existing soil.
In heavy clay soil, like we have in many areas along the Front Range, adding some sand may help with drainage. But adding to much can turn the soil into an adobe like substance which will hinder drainage not improve it.