I have a friend that I would like to chat with on skype. She speaks Chinese but understands a little bit of English. She prefers Chinese and in order to make it easier I would like to know if there is a translator for skype. (The thing is that she writes Chinese in the Latin alphabet characters. Most translators online use the Chinese characters for translation.

I have found one called ClownFish. It is for skype and is available for Linux but I never seem it work. I can't figure out how to make it work since the site provides no instructions or user manuals for Linux users. only Windows users.

Have you looked here?
http://clownfish-translator.com/linux.html
Just download the deb file (32 or 64 bit) according to your system and install it in the usual way using dpkg (as root or using sudo). Are you still using Debian Squeeze? That's a bit old so you may have dependency issues (or you may not).
I assume you've dealt with .deb packages before so there's no need for instructions.
Ciao and 再见
jdk