A domain name is the Internet address of a website or blog. (For example, websitesetupguide.com is the domain name of this site.) You'll need to choose a domain name.
If you already have a domain name, that's fine. I'll tell you how to use that.
Web hosting is where your website (or blog) actually sits, on a computer, in a building somewhere, when you put it on the Internet. It doesn't matter where in the world you're located, or where your web hosting is located.
Web hosting is the only thing you have to pay for, to set up a website. Everything else can be done for free.
Cost: $3-4 per month.
Choosing a web hosting provider is not easy. There's a huge number of very similar web hosts out there, and 99% of the information about them is bogus. Feel free to do your own research into web hosting, but I think you'll find it mind-boggling.
Whether they say so or not, all sites that recommend web hosting receive payment from the web hosting company, for the promotion of their product. Because of this, the Internet is littered with sites that promote any and every web host, regardless of the quality of those hosts. Typically, the person making the recommendation has no knowledge of the host. This makes it extremely difficult for a novice to find accurate information about web hosting.
Readers of this guide typically just want me to recommend a web host to them, so I only recommend one host – FatCow. It's the host I use myself. It's simple, reliable, and much cheaper than most alternatives. I also believe in doing business ethically, so I like to be upfront about the fact that this site is supported by commissions from some of the products, including web hosting, that it recommends.
FatCow gives a free domain name (normally $15-20 a year), and also gives visitors to this site a 65% discount off their prices. Signing up with FatCow takes about ten minutes. (This is fully explained in Step 5 – Start Making Your Site, but here's a link to their site, if you want to visit them now.) If you use FatCow, I can tell you exactly what to do, to set up your website or blog.
(Disclaimer: Website Setup Guide receives compensation for some of the products it recommends.)
Now that you know what a domain name and web hosting are, the next step is to learn how you actually make your site/blog.