I had a customer who wanted to create a DEV organisation to practise tinkering with CRM on.
The easiest way to do this is to take a copy of the live organisation and import it.
I have done something similar when upgrading a CRM 4 organisation to CRM 2011 so I was confident I knew what to do.
The process was surprisingly easy, take a backup of your live database (not the MSCRM_CONFIG), which is the database with the company name_MSCRM.
you then restore the database and specify a different name for the DB.
You then pop into the CRM deployment manager and choose import database, run through the rest of the option and you have got yourself a DEV organisation.
For those of you who want to do this and are not impressed with the instructions above, don’t panic the blog post below runs through the process step by step
http://msdynamics2011.blogspot.co.uk/2011/10/how-to-copy-microsoft-crm-2011.html
The only downside is I guess you are then using up extra licences.
Hosk's Dynamic Blog 
you’re not using up extra licenses – the CAL allows you to access all orgs on a server – but you do consume resources which could potentially impact your production environment – especially if you have lots of workflow, or waiting workflows etc. I prefer to have dev instances on a separate server. Its also a good idea to turn off email processing, or run a script to munge email addresses so you don’t accidentally send emails to your clients from the wrong system.
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thanks for the comment about the CALS.
the danger of emailing customers whilst testing, excellent point.
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A couple of things to watch out for are integrations with other systems and ISV solutions that might not be licensed for any organization other than the one you copied.
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