Personally, I think some hardware improves the experience, but…you can definitely do it with only software. I’m not sure if Audacity is the right choice…it’s great for simple, straightforward recording and editing. But to my knowledge, it won’t host instruments or drum machines.
My preference is for Maschine and Pro Tools, but really…any full-fledged DAW will work. Give a few of them a look and see what seems to click…then stop worrying about the choice and start learning.
If you need some suggestions…
Ableton Live
Logic (OS X only)
FL Studio (might be windows only)
Cubase
Sonar
Reason
Pro Tools
Maschine (there is hardware, but it’s not particularly expensive and quite useful)
None of them are free, but most have demo versions available and most have different “packages” that come with more or less stuff. To get started, you don’t really need anything but the basics…a subtractive synth, a drum machine, an EQ, a compressor, a delay, and a reverb. I think all of their basic versions come with at least that.
And there are intro-training videos available for every single one. They can all do pretty much the same things, but they all do it a bit differently…and some have strengths that others lack. You really can’t go wrong with any of them unless they just don’t fit the way you think.
As far as I’m aware, Pro Tools is still the most dominant in studios, but the focus on recording…which is a slightly different animal. Ableton Live, FL Studio, and Reason are probably still the most popular in dance music. There are people who swear by each one. And I’d bet that there’s at least one track you know and love that was made in each.
Reason and Maschine are the standouts as being very different from the others. Reason’s UI is modeled after old-school equipment, down to the aesthetic and sound desing of the mixer emulating that of big Solid State Logic consoles and all of the instruments and what not looking like they’re in a rack, complete with being able to play with the routing of different wires. Maschine is based on the idea of a groove box. With the 2.0 software, it can do basically everything, and that focus seems to have diminished some…but for jamming/sketching and the early stages, it’s still a bit closer to using a hardware groove box than the others, which look and work more similarly.