A firewall is a bit of software (or hardware) that inspects network traffic and filters it based on a set of pre-defined rules. Generally speaking, this allows you to improve the security of your PC by blocking attempts to exploit flaws in Vista and other software.
Windows Vista does already come with a free firewall, but it is simple and only allows minimal customization. To access the free firewall, go to Control Panel > Security > Windows Firewall. This should be enabled by default and provides a basic level of protection. If you also have a hardware router to connect to the internet, you will have an additional layer of protection which may be adequate enough.
However, if you want to see which programs on your PC are "dialing home" and passing on information then a more advanced firewall is required. The following free firewalls should give you this extra level of customization:
PC Tools Firewall
Zone Alarm is our preferred firewall, but other users may find Comodo or some of the other choices a better match.
If you want to test the security of your firewall setup, try the "Shields Up" link halfway down this page : http://www.grc.com/default.htm