Home recording is becoming easier and easier. Whether you come from a synthesizer or keyboard background and want to use MIDI to put a full orchestra behind you, or you just want to record your guitar and vocals for a demo it's easier than ever to record at home. While you will probably not get the same sound quality as a big name studio many if not most of the effects big studios employee are possible for a very modest sum.
First things first; you need the right room. That basement with the leaky faucet, and the furnace that turns on intermittently just made your demo sound very amateur. It doesn't matter if you're using a traditional 4 track, or hard disk recording extra noise is the enemy; you want the recording to stand out not the noises hanging out in the background. There are some exceptions. For instance if you are using entirely MIDI instrumentals with no digital audio you could record in a space shuttle launch with little worries outside the usual concerns of extra terrestrial travel. Also though sometimes you DO want that extra sound. Maybe the car driving by 3 floors below gives a little flavor to your blues track. Either way; plan on recording the sounds you want and staying as far away from those you do not especially when using traditional or digital audio.
Now that you have a relatively confined place and you've isolated the sounds you really want recorded it's time to check your gear. If you're recording a fender strat, or other electronic instrument you may need a guitar amplifier. If you've got a microphone you probably want a pre-amp. Whether you're using your trusty Shure SM-58, or a high end condenser mic the pre-amp is what's standing between you and well tapping on a cool looking piece of metal wondering where the sound is. This is also true when recording acoustic instruments.
Next up you're going to need a mixer. Much of recording is in the mix, and this is true regardless of whether you're using digital audio or midi. What you mixer is like may differ though. Many hard disk recording applications have a virtual mixing board. Applications such as Pro Tools actually interface directly with many mixers; you can actually watch the knobs adjust as you tweak controls in the software! Even with these however you may want to invest in an external mixer to give you quick access to tweaking the sound without having to use cumbersome controls like the mouse.
Another consideration is your recording gear itself. As much as it may seem counter-intuitive a lot of recording gear is noisy. An old computer with a decent sound card can record great things; including that massive fan keeping it cooled. Even relatively silent computers like the G4 Cube, or many laptops are still noisy at times and having that fan kick in 4 minutes into your guitar solo can result in a bad recording if not even damaged gear as you take out your frustrations on your guitar. There are cases that aim to isolate noisy components into a chamber but often the easiest way is to throw sheets on the walls, and run wires to the room next door. This probably however will require having someone play sound engineer and man the controls from afar.
That would be the final box on our checklist; the people. Yeah you're recording at home but you don't have to sound like it. You wouldn't, assuming your little sister isn't the next Neil Peart or John Bonham, let them play drums on your killer demo so why trust recording and mixing your demo to someone who hasn't cut their teeth at it? In a lot of ways your sound engineer is as much one of the instrumentalists as anyone else in the band. Getting someone to manage all that recording gear is a critical part of the to do list.