Years ago the conventional wisdom was that leaving your computer on all the time would allow it to last longer before a crash. The culprit: Your hard drive. Frequent starts and stops would cause your hard drive mechanism to wear out much faster than if the drive never spun down. An old saying (possibly apocryphal) was that stopping and restarting a hard drive was the same as eight hours of regular running time.
I talked to the good folks at Seagate to find out if things had changed. According to the company, starting and stopping is not a huge problem with drives any more, and they can be safely shut off and on in order to save power. According to Seagate, you can expect a drive to last for three to five years of running time before dying, though obviously many drives last longer.
What's the big factor that causes drives to die early? Heat, says Seagate. Ensuring your computer stays cool through the proper use of fans is far and away the best thing you can do to keep your drive healthy. I'd imagine that shutting it down when not in use will only help. Naturally, shutting down your computer will also conserve electricity, so unless there's a compelling reason to leave it on (as with a server), you should probably shut down at night.
So, how should you shut down properly? It's completely up to you, really. If you do a full "Shut Down" (or "Turn Off Computer") your computer will be completely off, using no power at all. "Hibernate" and "Standby" are lower-power states that allow you to resume quickly into the Windows desktop. Standby simply powers down hardware components like the hard drive, monitor, and peripherals, but continues to provide power to RAM, so everything you were doing stays active. Hibernate is closer to a shut down: It saves an exact image of your Windows desktop, then powers the PC down. When you awaken from hibernation, everything is back where you last had it. Personally I'm not a big fan of hibernate, because if I'm going to shut Windows down completely I like to reload everything fresh into RAM, which helps system stability. I tend to use both standby (for shorter times away from my PC) and shut down (for more than a few hours of downtime) instead.