Before you start you will need to download an IDE like Eclipse. I downloaded Eclipse Classic 3.6. Eclipse does not install like a usual windows application so you have to manually copy the eclipse folder to a suitable location on your hard drive then create yourself a shortcut.
Install the JDK if you do not have it already.
Install the Android SDK starter package I downloaded the windows executable from here
make a note of the install path as you will need this in the next step. In my case it was "C:\Program Files\Android\android-sdk-windows" . When the starter package install has finished agree to run and then select the "accept all" check box to download all the SDK tools.
Install the ADT Plugin. Open Eclipse and select Help/Install New Software click add in the top right corner then enter ADT Plugin for the name and input the following link.
https://dl-ssl.google.com/android/eclipse/

then click next, accept the agreement and click finish to install the plugin.
To configure the ADT plugin click Window/Preferences, select android on the left then paste in or browse to the path of your sdk location.

To add platforms or other components double-click the SDK Manager.ext file at the root of the Android SDK directory. Here you can also setup virtual devices.

That completes the setup of your Android Development Environment in my next post I am going to be setting up the "Hello World" application.
Sources: developer.android.com