How to create setup file?
Creating Setup and Deployment Projects in VS.NET
If need, just Google for more.
Do i need to install SQL Server on machine before installing my application?or d setup file which will be created will have sql setup??
No. You don't need to install SQL Server on machine. You just need to configure correct connection string. Internally, you would talk to a server on which the SQLserver is installed and has database in it.