Step 1.
Goto http://google.com/analytics and setup your account. When your account is registered google will generate a Google Analytics account number. This has the format similar too UA-xxxxxx-1, where x is a digit. Note down the account number as you will need it later in your drupal installation.

Step 2.
Download the drupal module from http://drupal.org/project/google_analytics
Unzip it and ftp it over to your web site. Always ensuring that you put the files ( not the zip'd files) to drupal/module on your site. Make sure you also copy all subdirectories.

Step 3.
Enable google analytics module & set priviledges.

The module should appear like this ;
Google Analytics 6.x-2.0 Adds Google Analytics javascript tracking code to all your site's pages

Step 4.
Set the google analytics module by going to Administer, Site Configuration , Google Analytics.
Insert your google analytics account number UA-xxxxxx-1
All the other settings are your preferences. Finally save the settings.

Step 6.
Now refresh your site. After a day or so google analytics should start to register your traffic.