Pat's Apparel Philosophy
Layers
Always dress in layers. This allows for increased insulation and, thus, more warmth. It also allows you to shed layers during the course of the day, as temperatures change and weather systems move about.
Wick Warm Weather
The clothing layer closest to the skin should wick moisture away from the skin. The outer layer should protect you from wind and rain. Clothing between these two layers should be fluffy layers sufficent to keep you warm without becomming overly bulky. The mantra is therefore "Wick Warm Weather."
Material Matters
Clothing is made of lots of different fabrics and it can be difficult to find the proper item for the task at hand. What follows will hopefully help in sorting it all out. Check with a local outdoors shop for specific recommendations if needed, but in general keep it simple. Nobody needs to spend a million bucks to be able to comfortably enjoy the wilderness in any weather.
The primary reason natural fibers (like cotton and wool) are no longer used is that they tend to absorb water and can easily become soaked. Wool will continue to provide warmth when it is wet, but who wants to be wet all day? Natural fibers also have a tendency to shrink when they dry.
A pretty good glossary of fabric terms (with some proprietary terms thrown in of course), is available from Emerald Citi Textile.
Wicking Layer
Everybody says to avoid cotton - "It gets wet and its ruined till it dries." "It doesn't wick or breath as well as new synthetic fabrics." etc, etc, etc. While I agree with these criticisms, I used cotton T-shirts as my base layer for years and stayed pretty dry and quite warm. The primary reason? Most folks already own cotton T-shirts and if not, they are easy to find and cheap.
One fabric that I love to use as my base layer is capilene. Short and long-sleeve capilene T-shirts are available at almost any outdoors shop. There are also many other new-fangled fabrics specifically designed to function as a wicking, base layer. They usually have some sort of elastic fiber incorporated (like lycra) and come in a variety of weights for different conditions. The elasticity is important because for a fabric to wick effectively it must be in contact with the skin (another major drawback to T-shirts).
And one last note for cold weather happiness - do not forget lightweight sock and glove liners.
Warming Layer
I used cotton T-shirts as my second layer for years as well - long-sleeve on top of my short-sleve base. This worked just fine, but again there are many new fabrics that can be incorporated into a better system. These usually are made of fleece in some form or another.
Fleece is probably the most widely used material as the primary warming garmets. I believe it is very effective. It can be rather bulky, but it is probably worth it because it works well. There are many different varieties of fleece available, some elasticized a bit for better fit and some offering a bit of water resistance, from light to mid, heavy, and expidition weight. They vary greatly in price.
If price is major concern, then the warming layer can be an inexpensive fleece garmet or it can be a turtle-neck and a sweatshirt. The point is to make sure there is plenty of air trapped by your body. Layering accomplishes this, so wear several garmets in the warming layer (again, try not to get too bulky) if necessary to stay warm.
Weather Layer
Waterproof (and windproof) is the key for a shell. Ideally the shell will also be breathable, meaning it will allow sweat and vapor to escape while maintaining its waterproof qualities. There are many fabrics that are excellent for this, and many of them are incredible expensive. Some are waterproof due to their weave and some are waterproof because they have a chemical coating. In general, I apply waterproofing to shell materials even if the weave is the marketed reason for their waterproofing.