This is one of those things that doesn't have a definitive answer. We've stayed both onsite and offsite and there are advanatages and disadvantages to both. I've never been of the mindset that you can't have a good Disney vacation without staying onsite.
Cost is obviously a huge factor. A few years ago, we rented a condo in nearby Windsor Hills in late August for about $800 including taxes and fees. That was for two full weeks. The place was beautiful, had a great community pool and each kid had their own bedroom rather than the four of us cramming into a hotel room. The cost would have translated into about 3 nights at Disney. I know I have to add in car rental, parking, etc., but there was still a huge saving. Another nice thing having a car is the ability to have as many meals as you like outside the bubble. Again, a significant savings and there's a large variety of fun restaurants outside WDW. I also don't buy the argument that it always takes longer to get to the parks. That's sometimes true, but there are plenty of places that are just as close, especially if you factor in the random waiting for a Disney bus time. I will say, if you do stay offsite, absolutely get a car.
We've also stayed onsite, but not for long periods of time. The theming, of course, is superior. Disney resorts, especially the mods and deluxes, are stunningly beautiful. I'd also say if you spend a lot of time at the resort vs. in the parks, it might be better to stay onsite. You also get the extended FastPass window, if that's important to you. Plus if you don't want to deal with driving, you can avoid renting a car (if you want, but you get free parking at the parks if you do). Magic Express is a great perk. The main drawbacks onsite are the expense and the inability for the most part for a family to spread out into separate bedrooms, suites, etc. That's more of an issue as the length of the trip increases.
