I stumbled upon this nifty tutorial that explains in detail (with screenshots) about installing and running the WordPress package offline on local computer. A package called XAMPP is required which runs Apache, MySQL and PHP on the machine without the need to install them. Here goes the link.

To use permalinks in offline mode change
AllowOverride         None
to
AllowOverride         All
in /apache/conf/httpd.conf file in addition to what the tutorial asks you to do.

And if you wish to synchronise the two databases (web and pc) check this out (under the section “Synchronizing WordPress Data”).

Note: You can also carry your WP blog on your USB stick. Follow this link for more.