I am updating this article because there were minor changes in the steps due to version upgrades. Feel free to let me know if you have other questions.
What you need:
1. WordPress installer: http://wordpress.org/
2. XAMP installer: http://download.cnet.com/XAMPP/3000-10248_4-10703782.html?tag=mncol;1
Step by step guide:
1. Download and install xampp in your computer. Choose your C drive as root directory for installation.
2. Start the apache and mysql services. Keep the window open.
**For those who are experiencing problems because of port 80, it might be that Skype is using the same port. Open Skype and go to Tools-> Options -> Advance -> Connection and uncheck Use Port 80 checkbox.
*** If it is still not working, if you are using Windows 8, go to command prompt and type in services.msc and find World Wide Web Publishing Service and stop it.
3. Open your browser and type http://localhost/.
4. Create a MySQL database in phpMyAdmin. Locate the Database tab and Create New Database fields. Enter the name of the database and choose utf8_unicode_ci in the drop down box. Then click Create.
5. Download and extract wordpress files in this location-> C:\xampplite\htdocs
Make sure all the wordpress contents are in c:xampplite\htdocs\wordpress folder. You can rename the wordpress folder into whatever name you like
However, if your “wordpress” folder is inside a “wordpress [version]” subfolder, then you should take it out of that folder and put it directly in the htdocs folder
6. In your browser, enter this url: http://localhost/wordpress/wp-admin/install.php
7. Click Create a configuration file button, then click Let’s go button
8. Then type in details of your database, if the name of your database is wordpress, then just copy the details below:
Database Name: wordpress
User Name: root
Database Host: localhost
Table Prefix: wp_
After you click on submit, you must choose a username, password, and website title on this page.
9. Click next until you’ve got a freshly installed wordpress.
**thanks to Brandon Macdonald for helping me out polish the guide