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TrueCrypt is a tool for creating encrypted "harddrives" on Windows and Linux. It can also encrypt things like flash drives and external harddrives. First off, go download it from their website. Run the program, and you should get something like this

Click "Create Volume"

Create a standard TrueCrypt volume and select a file for the TrueCrypt volume to be created in. Alternatively, you can also select a device such as a USB drive to encrypt. You do not have to use a .tc file (you could use a .mp3, .doc, whatever you want).

Now choose an encryption algorithm. Read about those here. I'm going to use AES, but you can choose whichever one you like. Next, choose a hashing algorithm. Read about those here. RIPEMD-160 is fine, but you can choose whichever one you feel like you want.

Next you will be asked for a volume size. Just keep in mind that the larger the file is, the more decrypting TrueCrypt will have to do when you mount it. (Newbie note: there are 1024 kilobytes in a megabyte and 1024 megabytes in a gigabyte ;))

Type in a volume password. This should be a STRONG password. Don't use your pet's name, your birthday, your phone number, etc. for this, or you're completely defeating the purpose.

You can also use keyfiles, which are just files that TrueCrypt uses to verify that you are the right user. These are nice, but if the beginning of this file gets corrupted, you are screwed.

Next you will be asked which file system you would like to format the drive with (NTFS or FAT32). I usually use NTFS here, but you can choose either one. Click the Format button, and your drive will begin to format. This should only take a couple minutes.

You're done! You now have a TrueCrypt volume of your very own. Hit "Finish" if you don't want to create another volume. If you want to mount your new drive, simply click "Select File", find the file you created earlier, and click "Mount".

Hidden Volumes
TrueCrypt also has the option to create volumes within volumes. These are virtually undetectable drives that go inside your normal TrueCrypt drive. To set one up, go to Create Volume and select "Create a hidden TrueCrypt volume". Then you can either select an existing TrueCrypt volume, or you can choose to create a new one. Note: You must use FAT32 to create hidden drives. Now put in the password for the outer drive, put in the password for the new drive, and you're done. To mount it, select the file you created the outer volume in, but instead of mounting it with the outer volume's password, use the hidden volume's password. You can now access your hidden volume!

One thing to be careful of with hidden volumes is that they can be overwritten by your normal TrueCrypt volume if you're not careful. Make sure you leave enough room for both your outer volume and your hidden volume and you'll be fine.