You have to copy/paste the assets folder into the directory it tells you in the LoL folders. From the readme:
* Go to C:\Riot Games\League of Legends\RADS\projects\lol_air_client\releases\0.0.0.XX\deploy\assets\storeImages\content
o 0.0.0.XX is a placeholder. The XX will be a number. (PBS: As of 5/8/2012, currently it's 0.0.0.141)
* Drag the Downloaded Skins folder into the content folder, then Merge the files when it asks you to.
o If you're using Windows XP, you'll need to manually drop the files into the folders.
* It will ask you to replace files, which you will want to do. It is for this reason that you should BACKUP THIS FOLDER FIRST.
o Backing up the folder will help in the case when you cannot patch, so you can easily fix the files.
* You now have skin images!