To qualify for Veterans Compensation the veteran must have 3 things. First, they must have a current medically diagnosed disability. Second, the veteran has to have had a precipitating disease, injury or event while serving in the military. Lastly, the current disability must be related to the precipitating disease, injury or event from veterans service time. The hardest part of this test is the third part, this is were most claims are denied. It is also significant to note that if you have a condition that is service connected and that service connected condition causes another condition to develop then this results in the second condition qualifying for service connection as well. Substandard care at a VA hospital that causes an injury is also considered service connected.  For more information on different types of VA service connection visit my page that explains this topic in more detail.
 
To better understand this concept I will provide an example.  Lets say that you presently suffer from PTSD that was diagnosed by your psychiatrist.  You suffer this condition as a result of an experience you had while serving in the military and can show this.  Then you would be eligible for veterans compensation and a determination will be made on your percentage of disability.  It is of course usually not this easy.  It can be very difficult sometimes to show that your present disability is related to an in service condition.  This is especially true when the in service disease, injury or event is hard to prove or is different from the current medical condition but caused the present disability.  Many times veterans may not even be aware that their in service condition caused their present condition.