How should I set up my home network?

Summary: Once you add a second computer, you're faced with setting up a network, at least to share the internet connection. Here are some general guidelines.

How should I set up my home network?

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You just bought your second computer. Perhaps you purchased a new laptop, a new machine for your spouse, or maybe just another machine for yourself. Now you'd like to be able to connect them all to the internet and it'd be nice to be able to share things like printers or extra disk space among your machines.
You need a LAN, or Local Area Network. There are lots of ways to do it but thankfully there are many straightforward solutions.

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The basis of your LAN will be ethernet. The word has a very specific technical meaning but in common use it's simply the technology behind 99% of PC networks. Most computers now come already equipped with an ethernet adapter - it's the squarish hole that accepts what looks like an oversized North American modular phone jack.
Your broadband connection being cable, DSL or something else, will first go through some kind of device typically called a modem (again, somewhat technically inaccurate but it's the common term). The modem's job is to convert the broadband signal to ethernet.

"There are lots of ways to do it but thankfully there are many straightforward solutions."

You'll connect that ethernet from your broadband modem to a broadband router. I've talked about them in a previous article What's the difference between a Hub, a Switch and a Router? Routers control two important things - as the name implies they "route" information between computers on your LAN, and between those computers and the broadband connection to the internet. The other important function if you get what's called a NAT router is that they provide a very efficient firewall - protecting the computers on your LAN from many of the dangers of the internet. As a side effect, a NAT router allows you to place several computers on a broadband connection that's really only designed for one.
As I said earlier, each of your computers will need an ethernet adapter and most will already have them. A cable will run from each computer to the router and from the router to the modem. Each computer will also need to support the TCP/IP communications protocol. TCP/IP is the fundamental "language" of communication on the internet - in fact the IP stands for "Internet Protocol". Windows includes TCP/IP support by default.
Unfortunately, configuration specifics are unique to both your ISP or broadband provider and the specific model of router that you are using, so I can't cover that in detail here. However much like ethernet and TCP/IP being common standards, the configuration I'm outlining here is also very common. Your ISP should be able to provide the information you need and the router will in all likelihood include the documentation needed for this common scenario as well.
I can hear some of you asking about "wireless". If you're starting a home network from scratch, I really recommend getting an integrated wireless base station and router to begin with even if you don't yet have wireless on any computers. The incremental cost is not that much, and wireless is so convenient that it's really likely that you, or perhaps a guest, will someday be looking to connect wirelessly to your LAN. The great news is if you select an integrated router then nothing I've described above changes except that there won't be a cable running to your laptop.
Just like "ethernet" is the standard for wired networking, "802.11b" is the standard for wireless (or WiFi) networking. A new faster standard, "802.11g" is now becoming popular and since it can co-exist with 802.11b many manufacturers are providing equipment which supports both. I recommend springing for the dual-mode integrated wireless router if you can. You'll thank me, if not now, then in a few years.
That's it! Here's a simple diagram of the LAN we've just created:

The other question that I can hear you asking is "but what brand of router should I get?". I run LinkSys equipment and have been very happy. In fact you'll find links there to the specific router models I happen to run. While mine are not dual mode (801.11b and g), LinkSys does make them. I've also heard good things about Netgear, 3Com, and US Robotics. My biggest advice is to stick to nationally well known brands.
For more information including tutorials, equipment reviews, and more, visit Practically Networked. It's a great place for your next networking steps.