First, before anything else, you must create a folder named "md2" in your SRB2 folder. For the unexperienced with computers, go to your SRB2 folder, and right-click and choose "New..." then choose "Folder." After that, right-click on your newly-created folder and choose "Rename." Type in "md2" and then click on a blank spot of the screen.
Now, you can download the model and skin. In this tutorial, we will set up a model that replaces the player sprite. You can download a zip file with the model here. Notice how the skin and md2 both have the same name; "PLAY." This is the name of the player sprite, but this is simply for organization purposes. It doesn't matter what they are named, as long as they have the same name. Also notice the skin is in the PNG file format. If you want to make your own models, you'll have to remember to save your skins as PNGs. Skins that are in the PCX file format work also.