First things first, decide what CPU (Central Processing Unit) you are going to use. The two big players in the CPU game are Intel and AMD. Both companies make good products and you will need to decide which one will work best for you. In general the AMD CPUs will be less expensive than the Intel CPUs. Current computing is 32 bit, since Windows 95 came out. Windows Vista is allowing the computing world to start moving to 64 bit computing. The problem is the chicken and the egg. Until more 64 bit applications are available there is no reason to move to a 64 bit OS (Operating System) The dual core is two physical CPUs on one chip. A quad core is four CPUs on one chip. This helps a lot when multitasking, but in the future more programs will be written to use all CPUs for the same program. With a dual or quad core CPU you can do things like convert a CD to MP3s and browse the web. Purchase as fast a CPU as you can afford.
After you pick your CPU you need to find a Motherboard (Main Board) that will work with it and have the features you want. CPUs come in different socket and slot configurations and the motherboard must match the CPU or it won't fit, and if you make it fit, won't work. I personally use Asus motherboards. Abit, Gigabyte, MSI, or Intel, if you're planning on an Intel CPU, are all good brands too. When picking out your motherboard you need to be concerned with the chipset. The chipset controls how the different components of the motherboard communicate. Currently I recommend an nVidia chipset if you are going with an AMD CPU and an Intel chipset if you are going with Intel. So, we've narrowed down the motherboards you need to consider by CPU socket and chipset, now you need to find one with the features that you want/need. Most motherboards today come with a lot of stuff built in that used to be sold separately, sound card, network card, and so on. Things you might want to think about, SATA drive support, older PATA drive support, PCI-E (also known as PCI-Express), home much RAM it will support, number of USB and Firewire ports, SLI support, RAID (Redundant Array of Inexpensive Drives) and built in features.
Next lets look at video. You're going to want a PCI-E video card. If you're not going to be playing games you may want to consider video that is built into the motherboard, this will severely limit the number of motherboards to chose from, but cut the cost of your build. The two big player in the video card game are nVidia and ATI. ATI was purchased by AMD. ATI and nVidia make the GPUs (Graphic Processing Unit), but many different companies make the actual video cards. If you plan on playing games get a video card that costs approximately the same amount as your CPU. Both nVidia and ATI have two card video solutions that allow you to combine the power of two video cards to get better gaming frame rates. The nVidia solution is called SLI and requires that your motherboard support it, it has been around much longer than the ATI solution. The ATI solution is called Cross Fire and is newer. Ideally both of these solutions require identical video cards. Two different cards may work, but you will be limited to the slower of the two cards. This can allow you to purchase once card now and get another later when the price drops to a more affordable level. Some video cards have additional feature like TV tuners so you can watch TV on the computer and use it as a PVR (Personal Video Recorder), like Tivo. Personal opinion is that things that do everything, do nothing well and you're better off getting a separate tuner card if this is what you want to do. Make sure that your video card will work in your motherboard, putting a PCI-E x 16 video card in a PCI-E x 1 slot may work, but the card will be unable to work at full speed due to the motherboard.
Next get your RAM (Random Access Memory) this is memory that Windows runs in and is cleared when the computer is turned off. I recommend 256MB for Windows 95, 98, and ME, 512MB to 1024MB or 1GB for Windows XP, and 2GB to 3GB for Windows Vista. There is an issue with 4GB (or more) of RAM in a 32 bit OS. Due to the way a 32 bit OS accesses RAM you may not be able to see all of it. If you're going to use a 32 bit OS don't purchase more than 3GB as you won't be able to use all of it. This issue does not apply to a 64 bit OS. You can use Crucial to find out the type of memory you need to buy for your system. I highly recommend Crucial memory.
Now, you need some where to put all of your parts, The Computer case. You will need to make sure that your motherboard will fit inside of your case, as cases come in many different sizes and styles. The main concern is size, motherboards go from mini to full, normally you can put a smaller board in a larger case, but not the other way around. A larger case will allow you to put more components in it, a smaller case takes up less room.
Next, is the PSU (Power Supply Unit). A lot of cases come with the PSU as part of the package, I recommend getting a separate PSU that will support your current parts and anything you might want to add later. I recommend a 500 watt or better PSU. I recommend Antec or PC Power and Cooling PSUs. I recommend planning on about $100 for your PSU.
Next on the list is Hard Drives. You can move your old hard drive over, if you want, but I recommend reloading it if your are running anything Windows 2000 or later. If you plan on moving your old drive over make sure your new PC will support the drive. Most current driver are PATA with an 40 pin, 80 wire cable. Newer drives are SATA and require a different power connector and a four wire data connector. The smaller cables of the newer drives improve air flow through the case. I recommend Seagate drives, they are currently the only manufacture with a five year warranty. The warranty won't recover your data, but at least you'll have a drive to put it on. Other good drive companies are Maxtor and Western Digital. Get a drive that will hold everything you need it to hold. You're going to pay at least $40 for a drive, for a little extra money you can get a lot more space. If you have room in your case you can add additional drives later if you need more drive space.
You will also need an Optical Drives to install your OS. I recommend NOT purchasing a Bluray or HD-DVD drive until the high definition battle is over or you have a need. If you are planning on playing Bluray or HD-DVD on your computer be advised that ALL of the components, from the drive, motherboard, video card, monitor cable, and monitor MUST BE HDCP compliant. If ANY component is not HDCP compliant you will be unable to view your content. I'll rant about copy protection another time.That is enough parts to get your machine going. Now you need to get an OS (Operating System). If you purchase the OS from the same place you get your parts you may be able to get an OEM version to save money. The OEM version has the CD and license number and is supported by the computer manufacturer, in this case you. The OEM license is legally tied to the motherboard. You may not legally move the license to a different machine. If you want to be able to move the license later you should purchase a full retail license.
That brings up the point of OEM or Retail parts. I prefer Retail parts, they usually cost a little bit more, but have a longer warranty and come with extras. A OEM CPU may have a 30 to 90 day warranty and is just the CPU. A Retail CPU has a three year warranty and includes a cooling fan.