When karaoke first arrived on the scene in the 1980s, it wasn't something an amateur could have set up, ironically. The equipment was clunky and expensive, and the music had all kinds of legal licensing issues to be worked out. In the 2010s this has all changed for the better, as anyone can set up their own karaoke party with modest money and effort. A modern laptop computer has all the processing power you'll need, so just buy some karaoke software, hook up a pair of speakers and maybe add some voice amplification, and you're on your way.
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Karaoke Software Programs
When it comes to organizing playlists, setting up the music to play and navigating the licensing issues, your karaoke software will take care of most of the heavy lifting for you. Karaoke software user interfaces resemble those of regular media players, so if you're already familiar with playing music on your computer, you should find a karaoke program pretty easy to use. Developers offer a variety of programs suited to different customers. Unless you have special needs, you should be fine going with a low-end program geared toward casual users. Some popular choices include KaraFun, OneKaraoke and OkeOke Karaoke.
Getting Karaoke Music
To get the music you need, you can download karaoke-version tracks from your favorite online music sellers. Additionally, most karaoke programs come with a library of thousands of different songs. You will almost always have to pay a short-term or monthly fee to access these libraries, but the upside is that you can then choose from thousands of tracks without having to pay for each of them.
One of the iconic images of karaoke is a singer clutching a microphone, but depending on your circumstances you might not need any electronic voice amplification for your karaoke party. Noisy environments, large spaces and quiet singers may benefit from voice amplification, but for karaoke at home with 15 people or less, you will probably be fine with strictly acoustic vocals. Try the acoustic route at least once; you will potentially save hundreds of dollars.
Microphone, Amplifier and Mixer
If you do need to buy equipment, at minimum you'll need a microphone and an amplifier. Avoid the cheap ones under $100. These can be fine for giving lectures in large conference halls, but with karaoke a poor-quality mic will draw attention to itself. In particular, get a good microphone, because otherwise your voice will sound muddy and the letter "P" will often come through the amp sounding like a hurricane. Also consider buying a mixer to go in between the microphone and the amp. This optional piece of equipment gives you much more control over the sound.
Most of the time, you need external speakers to get the most out of a karaoke night. Most laptops have quiet, tinny-sounding onboard speakers. Some have no speakers at all. Even laptops with relatively good speakers have limited power and pitch range, and will only serve your needs in a small, quiet room with no more than one or two people. For karaoke in a louder setting, a larger room or at an event with more people, use external speakers. A cheap pair goes for roughly $20, and cheap is all you need unless you're running karaoke as part of a business rather than just for fun. Karaoke is about the human singers -- not the fidelity of the sound.
Don't bother with surround sound systems. The extra sound quality isn't well-suited to a noisy atmosphere with live, amateur vocals. On most laptops any speakers must be plugged into the headphone jack, meaning that you'll only be able to connect as many as two speakers at a time anyway (or three, if you use an optional subwoofer configuration). You can get around this limitation with wireless speakers or additional hardware, but unless you really want the sound quality or already have the equipment it's probably not worth buying expensive speakers. Try the cheaper ones first, and then upgrade in the future if you decide it's right for you.