You must have a TV tuner or capture card of some sort to turn the analog tape into dgital video. i.e. you need some way to connect your VCR to your computer (or stand-alone dvd-recorder, if you have one).
The cheapest option is this: http://ledshoppe.com/Product/com/CA4047.htm (no tax, and free delivery wordwide).
I bought one myself from there. Quality isn't the greatest, but it's more than okay for the price. It's a bit tricky to install, set-up, and get working, but it does work (need to play around with settings). To fit recorded video onto a CD, you may need to compress the video.
Alternatively, it might be easier if you went to your local Best Buy (or equivalent) and bought a capture card. But that could cost anywhere from $50-$200 (depending on the card you buy).