This is probably the most important sauce in Vietnamese cooking, used as a dipping sauce with many dishes, including spring rolls, crepes, grilled meats and seafood. For a spicier sauce, mince rather than slice the chilies and garlic. Any leftover sauce can be refrigerated for up to 2 weeks.
Whisk together the sugar, water, fish sauce, and lime or lemon juice in a bowl, until the sugar is completely dissolved. Add the garlic, chile, and shallot if using, and let stand for 30 minutes before serving.
From "Authentic Vietnamese Cooking: Food from a Family Table" Simon & Schuster, 1999.