Can someone tell me what steps need to be taken to set up a customized e-newsletter without using the services currently available online such as Constant Contact?
You need a mailing list in a piece of software that will either send the emails for you or that will connect with your newsletter software. It helps if you can track more information than just the addresses.
You need a way to create your newsletter (this could be as simple as creating an email directly and then sending it to your list).
You need a way to receive unsubscribe requests (this can be as simple as a email address that only receives unsubscribe requests, such as firstname.lastname@example.org.)
We use ACT! from Sage to manage our mailing list, High Impact eMail (from TemplateZone) and have customized one of their newsletter templates that we liked, and MS Outlook as our eMail client.