Commonly houses are built without any insulation in their foundation walls -- even if the above-ground walls are insulated. This is a problem in the wintertime because heat can escape from the basement or crawl space into the surrounding air and soil. In the summertime, uninsulated foundation walls actually help to cool the house, but the amount they help is dwarfed by the amount they cost in the wintertime.

Ideally the place for foundation insulation is on the outside of the wall, so that the concrete of the wall serves as "thermal mass" to help maintain a constant temperature in the home. However, it is usually not practical to insulate the outside of the foundation once a house is built, so we insulate on the inside instead. Most commonly solid foam insulation is attached to the inside of the concrete walls down to the frost line, about 3 feet below ground level.  See A Buyers' Guide to Green Insulation.

When we insulate the walls of a crawl space with a dirt floor, we usually take the opportunity to seal the floor with a plastic sheet to keep moisture from the ground from entering the house. This plastic should meet ASTM E-1745 standards for vapor barriers -- the cheap plastic available hardware stores is liable to puncture and/or degrade over time.  The plastic covers the entire dirt floor and goes up the wall to ground level, where it is overlapped by the insulation.