My God irecordhippies! You have asked the biggest possible question in the shortest possible format. In other words, without giving any real information, you have asked for information that could fill a post the size of the Encyclopedia Brittanica! I have been working for 6 years to answer the question you have asked, and have only scratched the surface. Oh well, I'm not going to give you the answer you want. Instead, I'll take my best shot at the answer you need.
The real question is- where to begin. You sound like you have made a commitment to the concept of recording with a computer. That's fine. It's not the only way to do it, but it is a perfectly good way to do it. Because you are talking about an acoustic duo, I will address primarily recording real acoustic sound in real acoustic space, which is all I know anything about, anyway.
Advice #1- *don't spend money now*. You aren't ready to do that, and if you do it now, you'll live to regret it. First, set an initial budget, and believe me, it will grow. By semipro/project studio standards, I'm small time, and I've got almost $2000 in *cables*!
This is what I did, and in retrospect, I think I did it pretty well. First, I spent nearly a year on Homerecording.com, reading commentary, and occasionally asking stupid questions. Then I found a perfectly competent tracking engineer, hired him for $50/hr as a consultant, brought him into my ugly little room, and asked him, "How am I going to turn this space into a recording studio? What would I need to have here to create a space in which you could work?" In the course of 3 years, from that ugly little room to a final gold pressed master on its way to duplication, I probably only paid him for 8 hours of work. That $400 saved me thousands. And like the people above recommended, I bought books. I studied microphones, microphone placement, preamps, compressors, FX/EQ- before I bought a single piece of hardware. That also saved me thousands in buying the wrong gear.
Advice #2- You have to walk before you can run. Scale your plans down to what you can really afford, and build an expandable system based on solid, reliable equipment by well known and respected manufacturers. As you upgrade, most of that kind of stuff will find new uses, rather than becoming junk you sell at a loss. And if you do have to sell it, it will be easier.
Advice #3- It's all about the room. You can put a ton of world class gear in a room that sounds like shit, and world class engineers can make recordings revealing just how much your room sucks. People spend thousands on recording gear, and don't install diffusers, bass traps, baffles, etc. Expect that a significant percentage of your budget will be spent acoustically modifying the space in which you will work.
Advice #4- If you are married- get your wife involved from the beginning, or she will cut you off when she realizes that this is going to cost quite a bit of money to do well. Over the course of 6 years, my wife, the accountant, has authorized expenditures equaling the price of a new Dodge Viper. She has also become the executive producer, handling copyright law, mechanical royalties, residuals, work-for-hire agreements, and has become the artistic director, handling duplication, distribution, marketing, shipping and receiving. The list goes on and on. Did I mention that I'd marry her again in a heartbeat? Never forget to tell her that.
Advice #5- Learn to track before you try to mix. Learn to mix before you attempt mastering. It took me 3 years to become vaguely competent at tracking. I'm learning mixing now, but wouldn't remotely consider myself a mixing engineer. I wisely outsourced the mixing and mastering of my first major production, and have never regretted it.
Advice #6- Use your ears. That's what God/the gods gave them to you for. If, like most people, you have to use part of your living space for recording, as much as you can, shut out the sound of the outside world, then deal with your own space sounds. In my studio, you can't hear someone start a Harley in the driveway, and I've walked out into a thunderstorm that no one there knew was happening. However, you *can* hear the furnace, the sump pump, the fridge, the toilet, flourescent light fixtures, the cat, and even your watch. I can tell if you ate recently, and whether it involved carbonated beverages!
The better you control ambient (background) noise, the more sensitive and detailed mics you can use. That computer you want to use is really noisy, so figure out how to get the CPU out of your recording space, and into another room. Don't buy equipment with cooling fans.
Advice #7- 90% of what a tracking engineer does is select the right mic, put it in the right place, plug it into the right preamp, and then capture sound without overloading any component in the signal chain. So learn about mics, preamps, and gain-staging. Then learn some more, and some more. You will *never* know all of it, and if you keep your ears open, you will continue to hear things every day that you weren't expecting.
Advice #8- Garbage IN-Garbage OUT. Most beginning homerecorders worry about how the music will be recorded, instead of how it will be captured. If you give me a *great* signal, I can make a perfectly good recording of it on an old cassette deck. Give me a cruddy signal, and no equipment on earth will really change it. This sums up the above. Get the right mic in the right place, plugged into a good preamp, in a good room, and recording gets simple. You push the button that says "record".
Advice #9- Don't get sucked in by "tube" hype. The fact that an amp or a mic has a tube in it, does not make it better. There are great amps and awful ones, great mics and awful ones, with and without tubes. Screwdrivers are not better or worse than hacksaws.
Advice #10- the peripherals can kill your budget. You will need headphones, headphone distribution, studio monitors, tons of cables, possibly a rack for outboard gear, maybe a patch bay, furniture, high-speed CD duplication, a good instrument tuner, and of course, a Lava Lamp.The list is endless. Good mic stands are essential. Shock mounts for mics, pop filters. It will add up scary fast.
OK-all of that being said, how do you proceed? First, be patient. The more you learn before you spend money, the better spent that money will be. For basic recording, you need at least 4 simultaneous tracks, and 8 is much better. Later on, you will want more.
You will need some kind of interface with preamps that raise the weak signal of the mics to line level, and then converts it into a digital signal your computer can understand. It will most likely transfer the data by firewire, so you will need a computer that is firewire enabled. As soon as you can afford it, you will want 2 to 4 channels of mic preamps that are better quality than the ones in that interface, but that can wait until you learn to use the interface. Preamps run from $5 per channel to $5000+ per channel, so compromises will have to be made along the way.
Microphones- There are dynamic mics, including the specialized sub-category, ribbon mics, and there are condenser mics. Mics have different polar patterns, in other words, the direction or directions in which they tend to pick up sound, or not. There are large and small diaphragm mics, which respond differently to sound waves. It is a good thing to have a variety of mics, because they are like shoes- They either fit, or they don't. Cheap shoes that fit are better than expensive ones that don't. And- the best pair of ballet toe shoes are not that good for playing ice hockey. I would recommend that you begin your microphone cabinet with a couple of well made cheap dynamic mics, one higher quality badass dynamic mic, a matched pair of mid-priced small diaphragm condensers, a mid priced large diaphragm condenser, possibly tube-based, a multipattern (changes polar patterns at the touch of a switch) large diaphragm condenser mic, and a dynamic mic that is specialized for low frequencies (kick drum, bass, etc.). You can record pretty much anything on Earth with that combination. Other mics will be added later. There are dozens, and in some cases, hundreds, of different models in any category to choose from, and everybody has their wish list, and their budget, which rarely match. I will recommend my version of that basic mic cabinet, and I'm picking mics that aren't the cheapest, or the most expensive you could get, by a long shot. They're just my suggestions, and folks here will recommend dozens of other options:
Cheap dynamics: Shure SM57. I like the discontinued AKG D770- look for them on ebay. Standard mics on snare drum, hand percussion, guitar amps, brass/sax, almost anyplace where it's the only mic you have left, or your other mics just aren't right.
Badass dynamics; Shure SM7b, Electrovoice RE20, Sennheiser MD421 or MD441. Used on the same stuff as the cheap dynamics, but also for main vocals, piano, strings, almost anything.
Large diaphragm tube mic- I like Rode NTK and Studio Projects T3. As I said, there are many others, including some costing thousands. NTK is a pretty good main vocal mic for many singers. It's a fair room or ambient mic, and it's pretty good on acoustic guitar, mandolin, banjo, whatever instruments you have. For mid-priced non-tube mics, I like Marshall MXL V67, B.L.U.E. Baby Bottle, Shure KSM 32, and Audio-Techica AT4033 and AT4040.
Multi-pattern condenser- I like AKG C414B-ULS and Shure KSM44. There are many models of the C414, and the new ones are about $1000. You can find the older B-ULS model used on ebay for a lot less, and it works fine. For cheaper CAD M179 is not bad. These mics are good on *some* vocalists (if it's the right shoe). They are excellent on more delicate stuff- solo acoustic guitar, harp, woodwinds, and rock on percussion. Where the tube mics will show you what the centerfold looks like airbrushed, with makeup, these mics will show you what she looks like when she gets out of bed in the morning. Sometimes this is good, sometimes not.
Small diaphragm condensers- I like Studio Projects C-4, Rode NT5, and Shure SM81. A matched pair is good for stereo recording, as with a choir or orchestra, as drum overheads (essential), perfect for nylon string guitar, excellent on piano. They are not generally used as vocal mics, you'll find out why. Think of them as a thing that sees big, because they are small, like the little peep hole in a motel room door. Because the diaphragm is small, it is also light, and responds well to things that go from quiet to loud to quiet again very fast, called fast transients. This is why they are often used as drum overheads.
Low frequency dynamics- I like AKG D112 and Audix D6. Essental for kick drum, but can be good on other things, even certain vocalists. Who knows, someone may actually want you to record a tuba, and the D112 rocks for that job. Also good if the bass player wants you to mic his amp.
Hopefully all that gives you something to think about. It's just the first page of that Encyclopedia, if I had written it. Try asking smaller questions, and you'll get more useful answers. But you'll have to ask a lot of questions, and get a lot of answers, to get where you are going.
My last, best advice- You are unlikely to ever make money doing this, so have fun. Yeah, I could have bought that Viper instead, but every time I walk into my studio, I get the real pleasure of knowing that I have built a play room for adults, and I derive huge satisfaction from working with people who have never gotten to record in a well prepared space, with the right gear. It's like raising children. There's no logical or financial advantage to it, but it's one of the things that makes the hard work you do to pay for it worth it. Best of luck.-Richie