A huge studio full of equipment isn't what you need anymore, in fact, you could do most of the production and post-production elements of a song with just a well-equipped computer! What's important is finding a piece of equipment to separately record each instrument on it's own track, and there are many such devices priced pretty cheap, and most of them are now specialized to interface with your computer and record directly in!
Let's say you are working with a band, aside from that recording equipment, you also need to have proper microphone equipment for each individual piece, and you also should invest in a vocal booth to isolate the vocals for a clean mix at the end. This is especially important with the drums as well, unless you plan on fixing them post-production.
These days, you can find pop-guards, and even movable vocal booth walling that can make this easier than you realize. Sometimes artists only do the vocals, and have all the instrumentation done elsewhere, by a band in a studio or a producer across the world! Home recording makes each take less stressful, as you don't have to worry about hourly rates when recording your masterpieces. Now you may be curious as to which software to use when doing home recording. Well, it depends on what you want to do really.
Now you see, I'm going to first approach it like you're the average instrument player in a group. People in that boat aren't going to be too concerned with post-production, and simply want to record their jam sessions, and perhaps turn the vocals up for their singer. If that's all you're trying to do, your basic set-up with a computer and a recording interface should do it, as it'll either be a computer add-on or an external addition, either way it's job is to record what you're inputting.
Those devices always come with software like Nuendo or ProTools that'll be just fine for basic recording. Now if you're concerned with mastering and a polished sound, that's where post-production is absolutely key. Some things aren't on time as perfect as they should be, post-production can pull sounds and fix any discrepancy left by the live recording.
Drums are typically reworked in post-production to give a louder, crisper feel. Any kind of samples that come to mind can be added on, and rhythmically if the producer has the skill, etc. For that kind of work I suggest using Renoise and Acid. Acid is also particularly useful in doing remixes if you have to know-how to cut your sample pieces into loops.
In general, every song that you are putting out there also needs to be mastered. What that does *basically* is make your song sound similar to other songs on the radio (volume-wise mostly). Now you can pay for expensive mastering services, but the rule of thumb on the issue is to just use a program like Mp3gain and make it too loud. Strangely enough, too loud is the same volume all popular songs you enjoy will register at, try it for yourself!
Also when you have your finished mp3, use Wavelab or Goldwave to cut it down, as you don't want to have an excessive amount of silence before or after the song.
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