Some camcorders have what is called a pass-thru feature. That lets you hook up an analog source like your VCR for the input. For the output it has a firewire connection. If you don't have a firewire port on your computer you can buy a card for around $20 with 2 or 3 firewire inputs. That's what I had to do.
I have a simple little program called WinDV (it's free) that takes the output from the VCR and creates AVI type 1 or 2 files. Keep in mind that a VCR signal is not very high quality, maybe 240 lines of resolution, and you want to save as much of that as you can. Especially if the tapes are important family videos that are essentially irreplaceable. If you capture the VHS signal as mpeg files those files will be highly compressed and not particularly suited to editing.
Also, Studio will probably re-render those mpeg files again, further reducing the quality.
Honestly, I don't know a whole lot about other capture hardware because I've been using my camcorder and WinDV since I first started doing that type of thing. But I would still suggest that you capture as AVI. The files will be huge but you'll be better off in the long run. You can google for more info or perhaps someone will come along and suggest the best hardware for your needs.
Joe