The file will appear at the bottom of the list. Double click on the patch file you just copied. The file will then unpack itself in the game folder and the patch is installed. It is a bunch of files bundled together and formatted to be smaller. In order to get the original files out, you will need to use an unzip program to extract the file.
Many computers come with unzip software installed.
You can use winzip for free, but should buy a copy if you use it frequently. With Winzip installed, it is easy to unpack files using drag-drop. This will show you a little menu. It should unzip the patch to that folder. Again, it either unzipped the game files or unzipped a bunch of files including the setup.exe file.