To have your packages that you've either downloaded or personally created visible to Mathematica, put them in $UserBaseDirectory/Applications
, or $BaseDirectory/Applications
if you want them accessible to all users on your system. Alternatively, version 8.0.4 (and likely earlier) has a menu option: File -> Install which will do it for you. The menu option brings up the following dialog
where the option "Install for this user only (name)" would install it under $UserBaseDirectory
and the "for all users" option would install it under $BaseDirectory
.
For more information on where Mathematica places everything I would read this tutorial, and look through directory operations functionality.