Welcome to LQ
If the software is in a tar.gz you will need to expand it. Do this:
tar zxvf <name-of-file>.tar.gz
cd <new folder created>
Inside the new folder you will see an INSTALL file and a README file. They will tell you what you need to do next.
You haven't said which distro of Linux you are using. There is a very good chance that your package manager will have XMMS in there and that will make the installation even easier.