Extract the zip file and just drop the contents in the wp-content/plugins/ directory of your WordPress installation and then activate the Plugin from Plugins page.
Add the newly added widget to your layout and set the configration settings. Note: use your "full tumblr blog domain" in the domain field. i.e. n0nick.tumblr.com.
Now you should also add some stylesheets to your theme's style.css. You could take a look at an example from my personal blog at example.css attached, but keep in mind that this was created to my personal, Hebrew (right-to-left) blog.
Requires: 2.7 or higher Compatible up to: 2.8 Last Updated: 2009-6-17 Downloads: 1,989