Go to
http://www.justlinux.com/nhf/Compiling_Kernels and read through the kernel compliation steps throughly.
Make sure the options that you pick are the same as your kernel. This will make the upgrading to the new kernel a little easier.
You probably want to use make oldconfig under the new kernel version directory. This copy over your .config file from your old kernel to the new kernel.
Tools that you need
1) GCC (kernel.org recommends version 2.96)
2) Know how to use tar and how to uncompress bzip2 or gzip files
3) Know how to edit your boot loader (grub, lilo, etc)
4) How to login as su (super user) or root
5) Know how to use the cp command
6) Know how to use mkinitrd to make a ramdisk to load up modules (drivers)
7) Time to kill while compiling.