How do I install WordPress in XAMPP, and which folder is used?

Install XAMPP, start Apache and MySQL. Download WordPress and extract it into:
Windows: C:\xampp\htdocs\your-site-folder\
Create a database in http://localhost/phpmyadmin. Then open http://localhost/your-site-folder to run the installer. Use DB name you created, username usually root, password usually blank (unless you set one).