When I worked at the Chopping Block, people asked us about knives quite a bit. What knives should you buy? What brand? How do you sharpen them? These questions recently came up on a culinary email list that I'm on, and I thought I'd repost my answer here.
The only real essential is a good Chef's knife. You can accomplish almost any task with that one basic. All of the high-end knives are equally good; you want forged knives, and you want to keep to the around-$100 range, give or take a bit. Size, style and weight are totally personal. I've assisted a lot of Knife Skills classes, and I've seen big burly guys that prefer the lightweight Global 8" Vegetable knife (Global knives were probably the most popular knives in the store that I worked in) and petite women that preferred the heft and weight of a 10" Friedr Dick knife. I really like my 10" Wusthof, but I did develop a fondness for the Global knives after working with them for a while. It's best to buy knives from a store that will let you hold and even test out a few different styles. I like to say that you don't choose your knife—your knife chooses you.
You also want to buy a honing steel. I really like the diamond steels—they're more expensive but they sharpen just a bit and I find that really useful. Some kind of sharpener is also good to have. I like having a stone, but you have to know how to use it properly or you can ruin your knife. There are also a variety of sharpening tools, such as the Global MinoSharp, that are okay. If you don't know how to hone and sharpen your knives, take a class or have someone show you. You should hone your knife every time you use it, and again if you notice the knife getting dull. A sharp knife is much easier and safer to use than a dull one. You should sharpen the knife once you notice that honing isn't doing much anymore.
After that, you want a paring knife for small tasks and a serrated knife for bread. Anything else you buy should be based on what you do most. A boning knife is nice if you like to bone out your own meats. If you carve a lot, buy a carving knife. If you make a lot of sushi, look into a sashimi knife.
You get the picture. Most of the chefs I know own a LOT of knives, but they'll also tell you it's more of a collector's impulse than a necessity.
I also highly recommend that you take a knife skills class to learn how to use your knife properly. If you're in the Chicago area, the Chopping Block offers some great knife skills classes. If not, most areas these days have cooking schools that cater to the home chef and offer some kind of knife skills class. You will, however, need to practice after the class or it won't do you any good!
Recommended reading: The Professional Chef's Knife Kit by the Culinary Institute of America.