Now that more and more of us are switching to RZRecovery, I thought I'd chime in on how I install ROMs through RZR.
1. Copy the ROM zip file to any directory on your SDcard (there's no need to rename the file, and I always store mine in a directory under the Dev's name, to make it easier to find).
2. Purchase the license for Titanium Backup (TiBu) if you don't already have it -- it's worth it -- and go to Batch and select Backup all user apps + system data (skip this step if you don't intend to restore using TiBu).
3. Once your TiBu backup completes, boot into recovery (use the ROM shutdown menu options to do this if available, or select shut down, open your keyboard and press and hold the power button and the X button at the same time). Use your volume rocker to scroll down to Backup/Restore and your camera button to select it. Then select Nandroid Backup and Set backup name. Open your keyboard and give the backup a descriptive name for your current ROM (you can use the shift and alt keys on the kebyoard for capitals and numbers/symbols, you just have to hold them down while you press the desired key). Hit enter and close your keyboard, then scroll down and ensure that android_secure is checked. Now select Perform backup. This will do a nandroid backup of your current setup, which will be stored on your SDcard under nandroid.
4. Once the nandroid backup completes, use the power key to get back to the main menu and select Wipe Options. I always use Wipe all before installing a new ROM or a new ROM version and, because Im a little OCD, I always wipe 3 times.
5. Press the Power key to get back to the main RZRecovery menu and select Install, then navigate to the directory where you stored the ROM zip file. Select the ROM zip file and you will see four options. Because you've already made your backup and wiped everything (in my view, it's not enough to wipe only /data, so I always wipe everything first), you want to select Install XXXXXXXXXX.zip. Now just watch it install!
6. After installation completes, select Reboot into Android. Once your Droid boots back up after install, you can follow my TiBu restore directions found at the link below or sign in and allow the market to restore your apps.