From Microsoft:
"An Internet firewall is a piece of software or hardware that helps screen out hackers, viruses, and worms that try to reach your computer over the Internet. If you are a home user or small-business user, installing a firewall is the most effective and important first step you can take to help protect your computer. It is important to have a firewall and antivirus software turned on before you connect to the Internet."
Click here to read an article on Firewall installation tips and guidelines.
If you do not have Windows XP or choose to not to use the the built in Windows XP firewall a few free software firewall options are discussed and available here.
To test the effectiveness of your current firewall and other computer security software consider running the free online computer security testing utility available at https://www.grc.com/x/ne.dll?bh0bkyd2.
Hardware firewalls can be purchased for as little as $40 depending upon your desired feature set. (Nov 04)