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What is the link that you downloaded your template set?
You may first decompress the zip to a folder and use a compressor software (e.g. 7-zip) to compress all the files inside the folder into a tar.gz file. Then upload that tar.gz file in the "Template Set Manager" (The part marked with
"Choose a template set package to upload
Must be a tar.gz/.tar file with a valid XOOPS template set structure.")
Make sure that it contains XOOPS template set structure and your "uploads" folder inside XOOPS installation path is "writeable".
For a trial, you may press "Download' in the column "Action" of the row "default XOOPS Default Template Set" of the Template Set Manager of XOOPS. It will prompt you for the location for save the "default.tar.gz". Then you upload that "default.tar.gz" and name "the new template set name" as "TEST". A new set of template called "TEST" will then be created and shown. The template files of "TEST" is the same as "default".