The best insulation to use against your foundation wall is a rigid foam board product.
- You do not want to install moisture sensitive products such as wood, paper and fiberglass directly in contact with concrete, as concrete is a porous material.
- Installing moisture sensitive products against the concrete foundation wall could lead to mold and moisture issues.
One method to insulate your foundation wall is to install at least one inch of rigid foam board directly to the foundation wall and then install your wood framing against the foam.
- The foam board acts as your capillary break to protect the wood from moisture.
- At this point you could add additional blanket insulation in the cavities or leave it empty.
I would recommend reading Building Science Corporation's three page research paper "Renovating Your Basement" (here) as it will provide a little more technical detail and pictures you can use as a visual reference.
For more information:
Read "We need a safe and effective way to insulate our basement concrete walls. Which wall stud configuration and insulation are recommended?" a Q&A answered by Adam Hillhouse.