I have heard about Skype and encouraged my brother to try it, which he did and added his family along with setting my Father up on his computer. I have only used it a couple times but it is wonderful to be able to keep up with my family back in Wisconsin. My first camera/microphone I purchased was a Gigaware 1.3 from Radio Shack. It was on sale for $32 and would have worked perfectly if not for the camera not fitting properly on my large Samsung monitor. The clip just didn't spread far enough to grasp the lip of the screen. I now have a Logitech 500 that I think hooks over my monitor much better and might have a bit better picture despite both cameras have 1280x1024 screen resolution. The Gigaware was plug and play where I installed software for the Logitech.
The ability to connect with my parents and watch my grand-niece and nephews on the screen is an amazing treat when living so far away from them. The software is free and you certainly can find a resonable camera for $30-$40. Best Buy had the Logitech on sale for $32 this last weekend. You can also use Skype to make to make a phone calls with out using the video feature but there may be a monthly fee involved.