hg-prompt requires Python 2.5+ and (obviously) Mercurial.
First, clone the repository:
$ hg clone http://bitbucket.org/sjl/hg-prompt/
[extensions] section in your
[extensions] prompt = (path to)/prompt.py
Make sure everything is working:
$ hg prompt 'test' test
Take a look at the Quick Start guide to learn how to put some useful information into your shell prompt.