I use Subversion and TortoiseSVN — both are free. Your repository can be on the local machine. You don't have to work over a network.
However, for disaster recovery or even simple machine fault, it's probably a good idea to store your repository on a different computer and also back it up.
You might want to consider using a third party service to host your repositories off-site over the internet. I use CVSDude and am satisfied.
