1. You create the new language.
2. You set in the config setting the language to the new language. This is important so that the proper new phrases will be called so you can edit them.
3. You can then go under edit phrases in admin and edit all the phrases to your new language they will initially be english correct since thats the base language released with the application.
To make your own file you must rename phrases.php to say spanish.php and make any necessary changes in there but thats not really a support discussion.