You certainly can do this, it's called a "Multiseat" setup. I've looked into doing it in the past but never actually deployed it.
As far as Windows goes, you can use software like this:
http://www.miniframe.com/ and there are also other ways to do it on Linux (Both with software and manually configuring settings).
As far as connecting the terminals to the PC you can either just hook up keyboards, mice and monitors directly to the PC, but another option to consider are USB docking stations where you would connect each to the main PC with a USB cable and then hook up the monitor, keyboard and mouse directly to the dock.
Just remember in a system like this you need to plan carefully as if the single PC fails, everything will go down and get a system that is sufficiently powerful, especially with a decent amount of RAM.