A few days ago I started a tutorial series on using FTP, specifically using FTP to upload and install a WordPress plugin. Please note these steps apply for a WordPress.ORG blog, you don't have FTP access if you are using WordPress.COM (Here's the official WordPress explanation of the difference.)
If you look at the entire process of installing a plugin, then break it up into "phases", it would look like this:
- Download, install and set-up an FTP program
- Download and unzip the plugin
- Upload the plugin to your site, and activate it in Wordpress
The first post covered Phase 1.
Here's Phase 2: Downloading and uzipping the plugin.
First realize that most WordPress plugins ard themes are distributed as "zip" files. "Zip" means that the file (or files) has been compressed into a smaller size for faster transmission over the internet.
Here's an article explaining more about zip files in general: http://www.netsquirrel.com/articles/zip.html
There are several no-cost or low-cost programs for unzipping files. Currently I'm using CAM UnZip. It's free and available for download here: http://www.camunzip.com/
If you don't already have an unzip program installed, and you'd like to look at CAM, go to http://www.camunzip.com/ Click the big yellow download button. It's going to take another click to get to the final download page.

At the next screen, clicking "Click here to download" will take you to this page, the actual download page. Click on one of the Download options.

The dialogue box will ask "Do you want to run or save file?". Click Save.

If you download alot of stuff, you'll already know that its important to pay attention to just where your download file is going to end up. Saving to the Desktop is a simple approach. Some people keep a folder on the Desktop for downloads. I can also see merits in installing to an external device, such as a thumb drive. Whatever works for you, the point is just be aware of where the file is, so you can find it again.
After you've selected the place you want to put the downloaded file, click Save, and the download will begin.

Wait while the program downloads to your computer.
When the download is complete, click Run.

The dialogue box will ask "Do you want to run this software?". Click Run again.

The installation wizard will start up and walk you through the installation. Click Next.

Accept the license agreeement. Click next again. Read, glance at (or skip) the information page, and click next again.
Select the destination location -- where the program will be stored on your computer . The default is probably fine unless you have created some different file system hierachy of your own.

A couple more screens will follow. You can select a different Start Menu folder, you can add a desktop icon, you can tell your computer to always "associate" CAM Unzip with the zip extension. (That means whenever you click on a zip file on your computer, CAM would be the program of choice to run the file.)
OK. Now that you have an UNZIP program installed on your computer, you need a zipped up file to unzip.

Since this series started with a question about installing the WordPress PlugIn PhotoDropper, I'll use that plugin as an example of the process.
First go to: http://www.photodropper.com/add-photos-blog/ Scroll down in the text to the sentence "Download PhotoDropper and test it out for yourself. Click the linked text.

That text link takes you to a second download page. Click the large Download Plugin button.

The dialogue box will ask "Do you want to open or save this file?" Click save.

Remember all that stuff about paying attention to you put a file as you download it? With a zip file it is important, since you won't be able to run the install immediately after downloading (the file has to be unzipped before it can be installed.)
Downloading to your Desktop is one simple solution, a folder on your desktop is another. Some people like a particular folder on the hard drive for all downloads.
Choose your location, and click Save. (I'm saving to the Desktop here)

After the download of Photo Dropper is complete, an icon for the zipped file will be on your desktop

Right click on the icon, select "Open With", then CAM UnZip

Here we go again, glance at the "Extract to" location, you will need to know where the plugin has been stored on your computer in order to upload it to your WordPress site.
You can change the "Extract to" location by clicking on the button with three dots to the right of the location name.
After you've set and noted the location, click Extract.

When done, CAM Unzip will display the "Zip Message" box. Click File -> Exit to close.

Now you're ready to upload the unzipped plugin to your WordPress site. I'll cover that in Phase 3 soon.
CJ, I am using the next to latest release of wp and it has a really nifty utillity for installing plugins built right in. No need to unzip or ftp anymore.