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Joomla! uses three language packages, one for the front end, one for the administrator and one for installation.
Many people find it helpful to use the translation manager extension.
Language naming convention in Joomla are language and ISO code. Use 2 letters when available. The list is available here.
Because language strings may change it is best to create your packages using either the nightly build or subversion.
Name of package should be: xx-XX //using your language's ISO code.
If, for any reason, ini or xml language files are edited manually with a text editor, they have to be saved with the encoding UTF8 NO BOM.
For practical information on the way to make core Translation files, please see forum: http://forum.joomla.org/viewtopic.php?f=11&t=254709.