How to Create a Custom Site Definition and Configuration

Beautiful step by step explanation:

http://msdn.microsoft.com/en-us/library/ms454677.aspx

Just to add a small point to that:

In an Onet.xml file, the Feature element is used within a site definition configuration to contain a reference to a Feature instance and default property values. The Configuration element specifies lists and modules to use when creating SharePoint sites. For information about the format and elements used in site definitions, see Site Schema.
SharePoint Foundation activates Features specified within the Onet.xml file in the order that they are listed. Consequently, you must specify Features that are depended upon before Features that depend upon them.