A lot of studies show that a third of traffic disappears if users have to wait longer than 15 seconds for a page to load. So we set target sizes for basic page types like splash pages and home pages. Simple screen drafts are created with a drawing program, and users are asked to walk through tasks using the paper screens. Graphics and a more complete look can influence the user. Magnet Interactive avoids the paper trail, however.
Some folks swear by paper testing.
We create mock-ups of our sites. We probably spend more time and budget on creating mock-ups. But we find it more valuable watching people use the site. It's important to sit with the target audience, not with the VP of marketing or the head of the department who hired you to do the job. Hocus Focus Groups Task-based evaluations offer the most concrete pointers for rethinking your design.