Mods are replacement data files. They get placed in a subfolder of SE4
SE4 directory with mods installed
Mod folders, such as imagemod, Piratesmod, SJmods, and TDM, in the example above should have the same structure as the plain SE4 directory.
IE: inside "Piratesmod", there will be a "Data" folder, and a "Savegame" folder, and an "empires" folder.
All of the altered datafiles go into "piratesmod\data", and altered empire designs go into "piratesmod\data"
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PS: Are you mainly concerned with installing and playing mods, or are you interested in creating one?