One of the things about MODs is that they usually assume (as this one does) that you're somewhat familiar with the way MODs work, in general, so they skip over the multi-page tutorial on what "FIND" and "OPEN" mean. Some useful references:
Installing MODs in a safe way
The MOD is a list of instructions on how to change the PHPBB files. It comes in two forms, the human-centric text with the .MOD extension, and the computer-centric form in the .X* files. The .XML file is just the .MOD file converted to something easier for a computer to understand, and, with the use of the .XSL file, it makes a pretty web page that mirrors the text version, with highlighting.
There is a utility called "EasyMOD", which will modify the files for you, but it has limitations. While I made some effort to have this MOD tested for EM compatibility, EasyMOD can't deal with every situation it might encounter with previously-installed changes. EasyMOD is found in the MOD Database here, and supported at http://area51.phpbb.com/
in its own forum.
I recommend working as outlined in the second article above, using a "test environment" on your local system, which you can put together with EasyPHP (link in the article). It makes chasing errors down much simpler, and you do not risk your real site while making changes. Personally, I have several test boards I use for checking out various changes before rolling them out to "production".