First you need a digital to analog converter or "bridge" between your VHS and your PC. You can buy these outright, or if you have or know someone with a Digital Video camera, you can use the camera as a bridge or a "pass through" btw. your VHS and PC.
Once you get digital video to PC, you need a program for saving and editing. I think Windows "Movie Maker" probably comes with XP, and is actually usable now.
You can then burn a VCD or SVCD movie on a CD, or burn a DVD (DVD will be best quality). Not sure of what burning software comes with Windows. Roxio makes a good, flexible, burning program.