The domain name is the URL of your website. Some examples are:
Usually, people put a "www" before the name when they refer to it, but the domain itself is in the form somename.someextenstion
It's best to do this first because you'll want to incorporate the name into the design of the site.
This is your most important job!
You are the only one who knows what this website needs to say, and what's most important to emphasize. Others can help you polish your words, but the thoughts must be yours.
You'll need to write down what you want to say, at least in rough form, and have an idea of what you want your website to look like.
Although there are elaborate (and expensive) website creation tools such as Microsoft's FrontPage, there are less expensive, easier to use software packages that will do just fine.
In order to set up your own website, you must have room on a specially set up web server where your site will be "hosted". In theory, it's possible to host a website on your own pc, but response time for your visitors will be slower, you will need to learn a lot about running a web server, and you will need to be available to keep it up and running 24 hours a day. For most people, that's just not practical, and web hosting is not very expensive.