Modules

Modules should be installed into either /path/to/your/website/sites/all/modules or, if you have multiple sites and only want the module in a particular site /path/to/your/website/sites/subsite/modules.

"Essential Modules"
There's some modules that are just so useful that they ought to be considered mandatory for your Drupal sites. Here's a collection of those we find ourselves installing every time we make a new Drupal-based site:

• Content Construction Kit (a.k.a "CCK")
• Views
• Backup and Migrate
• Pathauto
• Poormanscron
• Token
• Webform

Useful modules
Here is a collection of modules we like to use on our sites.
Also, check out Lullabot's Top 40 Projects podcast.