Localization (short L10n) means adapting a piece of software to a local community, including, but not restricted to, translating it to the language. In the specific case of the Mozilla Products, this is mostly translating. Product-specific decisions remain in the hands of the product developers and the Mozilla Corporation and Foundation.
Localization and Mozilla
As said before, L10n is mostly translating the UI into some language. The files to be localized are DTD files for the use in XUL and XHTML source files and properties files, both UTF-8 encoded text files. The localizations are stored in the mozilla.org CVS repository. The bare minimum you need to localize a Mozilla product is a editor and a cvs client. Though more tools make your job easier.
Starting a new Localization
If you're interested in starting a new localization of one of the Mozilla products (Firefox, Thunderbird), please take a look at L10n:Localization Teams to see if someone is already working on it. They probably welcome help, so use the contact addresses given there.
If you're really the first one to pick up a locale, find more information on mdc:Create a new localization.
Contributing to a Localization
Check out the current team L10n:Localization Teams and get their contact information.