Install DOSBox if you haven't done so already (Anubis has written an excellent
tutorial). Unzip the game into your CDrive folder and run DOSBox. Type "cd colon" (or whatever directory name you chose) and then type "install". Select C:\COLONIZE as the directory you want to install the game to, select your sound settings etc and exit. To play the game you need to type "cd colonize" to change into the right directory and then type "colonize" again to start it.
Once you've installed the game, you can delete the "colon" folder again, obviously.