How do you create a website?

My buddies and I are interested in making a website. I would like to know some good design software and how to create the website itself. I have heard of sites such as go-daddy, but also heard that there are some limitations. I would like to know what some of those limitations are (if you know). Money is somewhat of an issue as far as $500 design software so please keep that in mind. We are in no way computer illiterate. Thanks for your help.