If you are going to be developing on Linux or UNIX then skip this step.
The DC development community has been created around setting up the compilers in UNIX or Linux environment thanks to (Dan Potter). Unfortunately not all of us wish to format our computers just to develop for the Dreamcast. Thank god for us there is a set of tools known as Cygwin. The Cygwin tools are ports of the popular GNU development tools and utilities for Windows. They let us create an environment in Windows that allows compilation of code for the Dreamcast using the same commands and makefiles as on a UNIX or Linux system.

Lets get started:

First off download this Cygwin setup file. Be sure to just keep pressing next and choose a download site to download the files from and then download them and install them anywhere. (I recommend C:\Cygwin)

Step 1C - Setting Up SH4