Creating language packs for extensions in Joomla 1.6+

From Joomla! Documentation

Although Joomla 1.6 supports installing language files for the front end (site) or back end (admin), it has no dedicated way to install language files for extensions (components, plugins, modules) unless they are installed with the extension itself.

Fortunately, Joomla 1.6 supports a powerful way to install an arbitrary set of files called a 'files' installation unit. (See Installation unit for an arbitrary set of files named 'files_test1').