Like every other endeavor in life, there are two ways of installing Drupal—the easy way and the difficult way. In order to do it the difficult way, you will need to set up your server by yourself before you proceed with the installation. You have the choice of environment to use for your new install: you may install directly to a live server, or you can set up a test environment on your local computer.
There are a number of ways to set up a test environment on your own local computer. Most time-pressed developers will install and configure directly onto a live server, but there are good reasons for running your application first on a local development server: