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I'm confused whether it is normally appropriate to use On-readings or Kun-readings when dealing with people's names; I'm fine when its just two character names; I just make a logical deduction in my head to how to say their name; but when I try to pronounce names with 3 kanji together, I'm completely lost.
I'll bring in examples at a later time, this computer can't easily type kanji.
I don't think there is a "normally" appropriate way. My personal philosophy is never assume you can read someone's name.
I suppose last names are easier to make a correct (educated) guess. It seems like they more often use kun-yomi. But they could be on-yomi, or other, lesser-used kun-yomi. I have two friends whose last names are the kanji 金城. However, one of them is かねしろ and the other is きんじょう. 吉田 I've seen as both よしだ and きちだ.
First names are a whole other story. From what I've heard and researched, it seems that Japanese people are allowed to basically associate any kanji they want with any reading they want. Kind of like how it's trendy these days to make up your own spellings for English names ('Lynzee', 'Linzy', Davyd', 'Markis', etc.) So your friend 良 could be the よし or りょう, but he could be something completely off-the-wall like ちから or あきら. Or 真 could be ま, まこと, しん, のぶ, or some other, random reading.
Never assume you can read someone's name. That is why when you fill out paperwork (application forms, official documents, etc.), they make you fill out the furigana for your kanji.
Istrasci's answer is basically right and deserving of the green check, but I thought it worth adding a little more dimension, which is to answer a question implied by yours, which is, "how do Japanese people approach the problem?" (Not to mention that Stack Exchange considers a healthy site one that has more than one answer to each question...)
There is no particularly reliable system for determining what reading to use for a person's name. However, there are a lot of very common readings associated with the most frequent names. As one friend described it to me, in a sense, people in Japan have a memorized list of the most common readings that they will use as their first guess.
田中 is most likely to be たなか, not だなか or たうち, or other possibilities, for no other reason other than it's the usual reading.
If you look at a lot of people's name cards, they will often have furigana over their names, either because it's a common kanji with an unusual reading, or a kanji that is so unusual that they don't expect most people to know it. It's an indication of how Japanese don't expect anyone to be able to determine a reading by another other method other than simply being informed of it.
People born and raised in Japan simply have the benefit of familiarity. As someone who is not native to Japan but have lived here a long time, I've built up my own list of assumed readings, though of course it's not as reliable as the natives.
Ultimately, it's not something you need to really set out to solve. The longer you deal in Japanese, you'll naturally just become familiar with the common readings. And no one is surprised or offended should you ever have to ask for a reading.
I once sat with two senior members of staff of a small but highly prestigious Japanese university while we went through the staff list of the institution looking for people who might be interested in taking up a fellowship at a British university. Between them they read out all the names - about 400. They had both taught at the university for over twenty years and were personally acquainted with a good proportion of the staff members. They were not quite sure of the pronunciations of, I'd say, 5-10% of the family names and were uncertain of the pronunciations of maybe 25-30% of the given names - even those of people they knew. The fact is, you can't be absolutely sure of the pronunciation of a Japanese person's name unless you have heard it from their own lips or are in possession of a meishi with furigana. I think this is just something the Japanese live with - it doesn't bother them until they need for some reason to be sure.
