Installations are created by means of scripts, which are ASCII text files with a format somewhat similar to .INI files. (No, it's not as complicated as you might be thinking!). Unicode Inno Setup also supports UTF-8 encoded text files.

Scripts have an ".iss" (meaning Inno Setup Script) extension. The script controls every aspect of the installation. It specifies which files are to be installed and where, what shortcuts are to be created and what they are to be named, and so on.

Script files are usually edited from inside the Setup Compiler program. After you have finishing writing the script, the next and final step is select "Compile" in the Setup Compiler. What this does is create a complete, ready-to-run Setup program based on your script. By default, this is created in a directory named "Output" under the directory containing the script.

To give you an idea of how this all works, start the Setup Compiler, click File | Open, and select one of the script files in the Examples subdirectory located under the Inno Setup directory. (It may be helpful to use the sample scripts as a template for your own scripts.)

See also:
Script Format Overview