You can use the approach using the installation GUI that Sean describes above. Alternatively you can place your package yourself (and remove it by hand if you shoose to) in one of the following directories.
For use of only the user who is installing it palce it in the directory that opens using this command:
For it to be accesible to all users of the system place it in the following directory that opens using this command:
Be careful not to put it in the AddOns/Applications folder of the Mathematica installation since this will be updated and overwritten if you update your copy of Mathematica.