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I've had good results using this microphone: musiciansfriend.com/pro-audio/...s&index=1 It does require an audio interface. I use one from Focusrite.
You can go two ways with this. The first is to use a USB mic that plugs directly into the computer. The second is to use a conventional mic with an audio interface, as Ken describes. The interface takes an analog signal and digitizes it.
I have a Blue Snowball USB mic that works well enough in certain applications, but I wouldn't call it great for doing music. It's worth noting that recording studios use conventional mics and digitize their signals.
If all you're doing is recording music for reference purposes, a USB mic is probably all you need - although I have experienced some significant latency issues with Audacity when multi-tracking when using mine. It can be really tricky to get the tracks properly aligned.
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