Great summary article from Dave Cronin at Adobe covering a range of prototyping methods as well as a solid list of reasons why prototyping is a good idea.

“In the broadest sense, all kinds of design artifacts are prototypes. Pencil sketches, blocks of wood, storyboards, wireframes, foam-core models, pixel-perfect state renderings, clickable demos, and functioning production code are all strategies for representing a thing being designed. However, in the world of interaction design, we usually reserve the term for ways of representing interactivity—not just the form but also behavior.”

“Prototypes are meant to be a cost-effective way of experimenting with ideas… and are generally considered part of the pre-planning phase.”

Reasons for creating prototypes

There are many reasons to create prototypes of interactive products or services. The activity of prototyping can aid in design exploration, evaluation, communication, and even construction.

“…prototypes provide the means for examining design problems and evaluating solutions.”

Reason 1: Prototypes make your designs better

“Although sketches are a great way to start generating ideas, the best way to test and refine these ideas is to simulate the way a person will interact with the thing being designed. These simulations illuminate aspects of the user experience that aren’t immediately evident and help designers understand how all the moving parts work together. In fact, the very act of creating a prototype can cause a designer to imagine a better way of doing things.”

Reason 2: Prototypes facilitate communication

“Interaction design is about much more than just having good ideas—it’s about expressing a vision, working with people to chart a path forward, and then ultimately executing on that vision. This means that designers have to convey the ideas in their heads to others. One of the most challenging things about this is the fact that while designers are quite skilled at inferring the behaviors of a whole system from a few flat images of a user interface, most other people are not.

The benefits and implications of your carefully crafted designs may be lost on engineers, product managers, marketing folks, and executives unless you are clear, persuasive, and compelling in your explanations. Prototypes can help communicate the requirements and goals you are striving to deliver.”

Reason 3: Prototypes enable user input and usability assessment

“Informal user feedback sessions and more formal usability tests are a great ways to figure out if your product or website has major usability problems—as well as to refine things like button labels and visual hierarchy.”

Reason 4: Prototypes help assess technical feasibility and reduce development time

“Delivering technically infeasible designs to your development team is the equivalent to giving someone driving directions to a dead end. They are pretty much guaranteed to be late, if they arrive at all.”

“If, on the other hand, you work with developers to prototype questionable interactions, everyone on the team will be more confident about what it will take to deliver what you’ve designed.”

Read Dave Cronin’s entire article here: http://www.adobe.com/devnet/fireworks/articles/cooper_prototyping.html
There is also a useful discussion going on over at IXDA regarding various prototyping tools (Axure vs. Fireworks vs. Flash Catalyst): http://www.ixda.org/node/24850