Insulation (click images for a larger version)

We used R-13 faced fiberglass insulation on the walls. The
facing should act as a vapor barrier/retarder. You just staple
the built-in paper flanges, on the insulation, to the wall studs.
NOTE: Fiberglass insulation is dangerous to inhale,
so you MUST wear a mask when handling it. Make sure you get one
that is clearly marked for insulation work. Those cheap one dollar
paper ones won't do. The masks we bought have an exhalation valve
built-in to make breathing a little easier. They were around six
bucks each.