DMOZ.org (The Open Directory Project) - owned by AOL, and operated by a team of volunteers, the Open Directory Project or ODP is the largest FREE active Internet Directory.

This is THE place to be for a website on the Internet. It is the definitive directory, and is referenced by all of the major search engines. The only problem is that there are 3 million websites in the directory, and more than a million in the que waiting to get in. Getting into this directory can take 3 - 6 months, and that's if you qualify. Make sure to read their guidelines for creating a Title and Description before submitting, and make sure you are submitting to the most relevant directory.

Yahoo! Directory - at around $300/Year this directory carries a heavy price, but may still be worth your while. If you can fit it into your advertising budget I would recommend it, but usually only if you really have an extra $300 per year lying around. The benefit of this directory may increase as time goes on, but as of right now, this is probably not worth your time or money.

LookSmart Directory - This is actually a Cost Per Click service that looks like a directory. You'll pay $0.15 per click and you aren't guaranteed a position or click volume. If done correctly this directory might do well for your website since it does provide the main results for the third largest search engine on the Internet (MSN.com), but this is strictly a budget and judgment call as you can get similar results for free from Inktomi.
 

Other Good Free Directories With a Catch

Gimpsy.com - Free directory with some weird requirements. The index tries to use "real language searches", for example "Compare Insurance Rates" would be a directory structure Compare >> Insurance Rates , Insurance Rates being the subcategory. A little tricky but worth submitting to.

GoGuides.org - A great free directory, the only catch is that they want you to become an editor. Which basically means that before you can submit a URL you will need to fill out an application. The bonus is that once you are accepted your link goes online immediately.

JoeAnt.com - Same deal as GoGuides.org. If you have the time to apply to become an editor, then you can list your site. Worth your time in my opinion, but its up to you.

Zeal.com - Great directory, which will get you into the LookSmart directory for FREE! The catch is that your website has to be strictly informational and non-profit. Some exceptions are made, but in order to get in you will either need to know an editor and ask them to submit for you, or become and editor yourself like with GoGuides and JoeAnt, however I hear the application process is more difficult.

Good luck with your own website search engine submissions.