1. Right click My Computer > Properties > Computer Name Tab > click on the Change radio button. Enter a name for the PC and make sure Workgroup is selected and choose a Name for the workgroup. Do the same on the other PC but make sure it has a different Name but the Workgroup Name is the same.
2. To share a folder, right click it and choose Sharing and Security. You don't need to use the Wizard so just to Windows to share the Folder. In the Network Sharing and Security box, make sure both boxes are ticked.
3. It may help to disable the both firewalls (just disconnect from the internet first) whilst you set this up. Once everything is up and running, enable the firewalls and reconnect to the internet.
Windows will need to restart after you have changed the Workgroup names.