Ali,

You believe there are two high-level options for localization. You can either install a language pack, or create one yourself. If you want to install one, you can use the Host -> Extensions page to install an already existing Language package.  If you want to create one, you select "Create New Language" link from Host -> Languages page.

From the "Create New Language" page, you can select whether you want to localize the core or localize an existing extension. If you pick to localize an existing extension, only the languages that are currently localized for the core are available to use (the default is English only). In other words, if I have English and Spanish localization packs for the core available, I can create a language pack for an extension in either of those languages, but if I only have English, I can only use English.

Once you've created a new language, you can click the edit icon (the pencil) next to the Language and then click "Edit Language Files" to actually localize the text.

Hope that helps,

Ian