Go to web.config , find enablePasswordRetrieval and change the value to "false"

Why do you want to disable this function?

That's one way but if you want your users to not even see the link then open up Admin\Authentication\Login.ascx and look for the following line....

<asp:Linkbutton id="cmdPassword" resourcekey="cmdForgotPassword" cssclass="CommandButton" text="Forgot Password?" runat="server" />

and change it to

<asp:Linkbutton id="cmdPassword" resourcekey="cmdForgotPassword" cssclass="CommandButton" text="Forgot Password?" runat="server" visible="False" />

your users won't be able to see it.

NOTE: You'll have to do this everytime you do an upgrade to DNN as the page will be overwritten.