The quality of your microphone dictates the fidelity and quality of all live recording. Choosing a microphone is a matter of taste and preference. However selecting one versatile microphone that is capable of recording a variety of sound sources, including voice, guitar and drums, reduces the need to invest in a range of different microphones. Dynamic microphones lack the capacity to capture fine details, but they are versatile and can adequately record a range of sounds reasonably. Capacitor microphones are more specialist and less versatile, but offer higher quality sound capture in certain situations such as recording quiet vocals.
There are four dominant production software brands in the home recording market. Logic, Cubase, Pro Tools and Reason. Each has the basic functionality for recording, mixing, editing and mastering your music while offering different advantages and drawbacks. For example, Cubase has an intuitive sequencing interface that simplifies the drum programming process, but its mixer interface is limited compared to Pro Tools. Apple markets its Logic program as being user-friendly and of course, logical. Reason is typically regarded as the best choice for analog synthesizer sounds.
This is where you route your audio signal. Your computer's stock sound card is unlikely to have the processing power to do justice to your microphone in a recording context. An audio interface processes the signal from the microphone or instrument and converts it into data before sending it to the recording software. Invest in an audio interface that has built-in preamps. This eliminates the need to spend extra on separate preamps. Firewire-powered interfaces convert data faster than USB-powered ones, which reduces latency in the signal.
Monitors are studio quality reference speakers. "Monitoring" is the industry term for listening analytically to what you're recording, rather than listening for pleasure. In the home audio context, your speakers should make the music sound as clear and loud as possible. In the recording environment, your monitors must be accurate. This is how you detect flaws in the mix. The classic studio monitor is the Yamaha NS10; it is favored because of its accuracy. The NS10 highlights your flaws mercilessly. Your speakers won't affect the quality of the sound going in, but they will influence your ability to accurately analyze and mix the music that you are making.