You don't have to be on a domain. The local server user accounts can be used with windows authentication. If the machine is on a domain, then either AD users OR local users can be used with windows authentication.
The minimum that has to be in place to use windows authentication in asp.net is that IIS has to have Windows Authentication enabled for the web site. IIS can still have other authentications enabled for the site too, even anonymous authentication can be used in conjunction with windows auth... as long as windows authentication is enabled also asp.net can use it.
Otherwise, your question is too broad for a good answer here. Authentication in asp.net is a very big topic; and when you add AD to the mix it gets bigger. I recommend checking out the MSDN documentation, reading through it, experimenting with it, then coming back here with more specific questions.