1. Create a new folder in the "mod" folder of your ElGG installation called "gallery". 

2. Copy all files from the compressed archive into the "gallery" folder (this .txt file is not needed).

3. Change the options in the "gallery_config.php" so that the path and dataroot settings fit to yours. Settings for the thumbnails (their dimensions, name-endings and so forth) can also be changed by editing the gallery_config.php file.