Simply put: It's explained in the help file you get after it is installed.
http://www.subsim.com/radioroom/showthread.php?t=141773
Basically JSGME makes a folder named 'MODS' in the game's base directory (if it isn't allready there). Inside it should be folders named differently for each specific mod. Within those 'specific named mod' folders are the modified files as you would find them in the games base-folder structure. JSGME copies the folders and files it finds in MODS/MyMod, into the game's base folderstructure when you eneable those mods. So, i.e. Sh3/MODS/Mymod/data/zones.cfg would be copied over Sh3/data/zones.cfg. But all overwritten files are neatly backed-up automatically aswell to prevent irriversible damage.
If you want to make your own JSGME-compatible mod you need to recreate the folderstructure with modified files as it would be found in the game, but into MODS/Mymod/