Translators should start by downloading the tarball and translating the files to their language of choice. You can find more information about the process in the Translator's guide (of which this page is also a subsection of).
The translated files should be stored in contrib-cvs/translations/id where id is an RFC 4646 language code. If you don't know your code, ask on the translations mailing list.
You should only put the individual translated files in this directory. A script will generate a merged id.po file. Make sure to fill out the header section of each file and rename them from .pot to .po. Also make sure to start with the file general.po. This file contains strings that appear in more than one place and therefore will give you best results for least effort. It also is required to create the downloadable files. There is also an installer.pot file which will not get merged into the id.po file. This is used by the installer, and should not be imported to the Drupal database.
If you do not have a CVS account, and a project already exists for your language, create an issue against that project, attaching your files to it. If there is no existing language project, create an issue for this (the translation templates) project and attach your files to it.
Note that the Drupal team will not check contributed translations for accuracy or errors.
If you have ideas or problems with how the translation template extractor works, this tool has its own project now, so feel free to submit issues there.