What is the most economical and energy-efficient way to winterize windows?
In the winter, windows can be one of the biggest sources of heat loss in your entire house.  In an older house with no or low insulation, this can be particularly true.

One thing that you can do with minimal fuss - if you feel cold drafts coming from around the window its entirely possible that you've got air leakage around the window frame itself.  A quick test to determine whether this is true or not is to light a candle and hold it about a foot from the window, and slowly move it around the border of the window.  If you see that the candle's smoke is significantly disrupted, you can add spray foam insulation around the perimeter of your window.

1) CAREFULLY remove the trim around the interior window frame so you end up with a window like this:


2) If there is an obvious gap between the window sash (the wooden frame around the window) and the structure, use some canned spray foam insulation and carefully spray foam into the gaps to create an air tight seal.  DO NOT OVERFILL as the foam will expand.



You want the foam to end up looking like this:



Give the foam AMPLE time to cure - give it a good 24 hours - and then use a straight serrated knife to cut any squeezed out foam off level with the wall.

How the window may look prior to trimming back the foam:



Finally, reattach the window trim like it was before.