Creating a child theme

A child theme is the recommended way to modify an existing theme - it will keep your changes after updating the parent theme.

External Content:
Child Themes « WordPress Codex
What is a Wordpress Child Theme
 
Go to the wp-content\themes folder and create a yourparenttheme-child (this name format is recommended but not necessary) folder.
Create a style.css file in it
Enter the text from the picture in the file.

(1) Theme name: - required

(2) Template - required
/this field must have exactly the same name as the parent theme folder/

(3) @import url... - highly recommended
/this css file will override the parent's one and in most cases you'll want to keep its styles/
The text from the picture above as text (for easy copy and pasting)

/*
Theme Name: Twenty Eleven Child
Theme URI: http://example.com/
Description: Child theme for the Twenty Eleven theme
Author: Your name here
Author URI: http://example.com/about/
Template: twentyeleven
Version: 0.1.0
*/

@import url("../twentyeleven/style.css");
 
Go to Appearance - Themes and you'll see the newly created child theme
You can copy and paste template files in your child theme for editing. These files (404.php, header.php) will override the parent's ones.

Note! - functions.php must be created empty because it is loading as addition to the parent's one (before it) .
A sample functions.php file