There are many ways to hook up a portable generator. They boil down to two categories: legal and woodchuck. The short answer is that to be safe and legal, you should use both an inlet box and transfer switch.
At it's most basic, you need:
1. A way to "backfeed" the power from the generator. This can be through the electric dryer hookup using a "suicide cable" or using a generator inlet box. The reason that it's unsafe to use a dryer hookup is that you need a cable (or an adapter) with a male end coming from the generator. If you are handling this while the generator is on, there is a chance of accidental electrocution. An inlet box is not only safer, but you can mount it in a convenient location to where you'll be running the generator.
2. A way to prevent the generator from feeding power back into the main power grid. This is for the safety of the utility workers as well as to avoid overloading the generator. The woodchuck solution is to make sure you turn off the main power switch at your breaker box before hooking up the generator. The legal way is to use a TRANSFER SWITCH or SAFETY INTERLOCK. A "safety interlock" is a mechanical device that mounts to your breaker box and prevents the generator breaker and the main from being switched on at the same time. For this to work, the generator breaker must be in the #1 location in your breaker box.
3. You need a way to control which circuits the generator is supplying power to. You can either do this manually by flipping breakers, or have the power go to pre-selected circuits in a transfer switch. Remember: your generator probably has a 30 amp output (compared to 100 or 200 amps for the house) so you can't run everything at once.
When I hooked up my generator, I opted for a inlet box and safety interlock. It's the least expensive of the legal and safe options. There *is* some debate about the legality of interlocks, so check with your local utility. The other advantage of an interlock over a transfer switch is versatility. While I must be mindful of the overall load, I can run power to any circuit....although not all at once. One disadvantage is that I don't automatically know when the power has been restored. I have to keep going outside and looking at my meter to see if the digital display is back. With a transfer switch, you can leave a light on for one of the circuits not hooked through the switch. When you see the light come on, you know power has been restored.
Bottom line: you don't absolutely need a transfer switch, but it's the safest, legal, dummy-proof way to go.