The Sacred Valley is a beautiful area near Cusco, with interesting rural villages at intervals which it is worth taking time to explore. There are tours of the Sacred Valley offered in Cusco; however, i don't believe that it is necessary to join one of these groups as the trip is easy and it works out much cheaper to go alone.
I would recommend starting in the town of Ollantaytambo-if you take the train from Machu Picchu it stops here on the way to Cusco. Alternatively, take a bus to either Ollantaytambo, or Pisac (the town at the other end of the valley) from Cusco. The journey takes approx 2 hours, and costs $1. The scenery is breathtaking.
Ollantaytambo is a charming town with cobbled streets and some impressive ruins.
Following the Urubamba River through the valley, the next stop is the town of Urubamba, which is probably the most developed (but pleasant none-the-less), and worth having a wander through.
Jump on the next local bus to the small village of Calca, which has a pleasant, if small square. Carry on to Pisac-famous for its artesania market, where you can barter for souvenirs (or simply "window shop") or if you are feeling brave, sample the traditional Peruvian dish-roasted "cuy" (guinea pig). The market is held on Tuesdays, Thursdays and Sundays and is worth a visit. Also of interest in Pisac are the ruins. It is quite a trek up to these, so if you have recently arrived from sea level, take a taxi.
I strongly recommend this trip-it will give you an insight into traditional Andean culture, and although these people are poor, their hospitality will amaze you. Share a glass of "chicha" in the market, travel on a local bus, and you will have an unforgettable time. Remember however, that these are indigenious people, so be careful not to cause offense.