After downloading the source distribution, you need to unpack it somewhere. The particular location doesn't really matter. You can unpack Squid in your home directory or anywhere; you'll need about 20 MB of free disk space. Personally, I like to use /tmp. Use the tar command to extract the source directory:
% cd /tmp % tar xzvf /some/where/squid-2.5.STABLE4-src.tar.gz squid-2.5.STABLE4/ squid-2.5.STABLE4/CONTRIBUTORS squid-2.5.STABLE4/COPYING squid-2.5.STABLE4/COPYRIGHT squid-2.5.STABLE4/CREDITS squid-2.5.STABLE4/ChangeLog squid-2.5.STABLE4/INSTALL squid-2.5.STABLE4/QUICKSTART squid-2.5.STABLE4/README ...
Some tar programs don't have the z option, which automatically uncompresses gzip files. In that case, you'll need to use this command:
% gzip -dc /some/where/squid-2.5.STABLE4-src.tar.gz | tar xvf -
Once the source code has been unpacked, the next step is usually to configure the source tree. However, if this is the first time you're compiling Squid, you should make sure certain kernel resource limits are high enough; to find out how, read on.