Before attempting a manual installation of the application using the .apk file, you must allow your phone to install from "Unknown Sources" (i.e. non-Market apps) at first.
To do it, find Menu -> Settings ->Security and check the box marked "Unknown Sources".
Install File Manager
Android cannot browse the data on your SD card spontaneously, so you need a file manager from a market to work it out. There are a variety of file managers available on Android, but my favorite is ASTRO File Manager.
Copy .apk file to SD card
Once you have ASTRO File Manager installed, connect your Android device to a PC via USB cable. Mount the SD card and put in the .apk file you would like to install.
(Skip this step while you download with your phone)
On your Android device, use ASTRO File Manager to search for the .apk file and select it.
Here will come out a dialog box allowing you to install the app. Select "Open App Manager".
On the next two pages, select "Install" twice to install the .apk. When all are done, the installing is finnished.