See The SWORD Project - API documentation for the current (or very nearly current) SVN HEAD. Starting with the next version of the documentation (post 1.5.11), there will also be other documentation placed there for developers to keep track of.
Locale file layout
A locale file is stored in the locales.d folder under the Sword path. The file name is generally the language code with extension .conf 
Locales require a few things. Let's step through the German locale:
excerpts from /sword/locales.d/de.conf:
[Meta] Name=de Description=German
The above information is used to define the locale. They should be fairly obvious. Name should be taken from a standard abbrev, probably returned from echo $LANG. Please understand that this, and all entries are case sensitive.
The following entries are translation strings for anything you might want. REQUIRED are the book names of the Bible. Other things might be option name, value, tip, translations, or any text returned from the engine. It may not work right now, but if it doesn't, please post a message that you found a constant string in the engine not being translated.
[Text] Genesis=1. Mose Exodus=2. Mose Leviticus=3. Mose # <snipped rest of book names> [Book Abbrevs] 1 C=1Cor 1 CHRONICLES=1Chr 1 CORINTHIANS=1Cor 1 JN=1Jn
These are the abbreviations for each book and are REQUIRED for the locale to work correctly in the engine. They are actually more than just abbreviations; they tell the parser how to incrementally parse versekey text. Notice that 1 Chronicles would come, alphabetically before 1 Corinthians. The above entries say: 1Cor (which is the OSIS book id for 1 Corinthians) has precedence up through "1 C", any character beyond that will disambiguate the entry anyway, so the default 1 CHRONICLES or 1 CORINTHIANS entries would take over from there.
Please note that the English abbreviations are no longer required to be in the abbreviations section as they are in there by default; in the example above they are in there for demonstration purposes.
There MUST be at least 1 abbreviation entry for each book name comprised of a toupper (uppercase function) of the entire string EXACTLY as you have translated it in the [Text] section.
Following are the REQUIRED entries from our excerpt book names above.
1. MOSE=Gen 2. MOSE=Ex 3. MOSE=Lev
That's it for requirements. Tuning your locale can be important for the user experience. Many [Book Abbrevs] entries may be added to assign precedence if, for example, you find you are getting taken to the wrong entries from text like: "Ma 1:1" (would be Malachi by default because of alphabetical precedence, but might want Matthew or Mark). In this case, you would put in an entry MA=Matt or MA=Mark
You can test your locale with the sword/tests/parsekey test program (this program is in the SWORD source along with several other programs that are used to validate the configuration files) and try different strings to see how they parse.
Note that punctuation characters commonly used in verse references are not allowed in localized book names. These include the hyphen '-' (used for verse ranges), the colon ':' (used to separate chapter and verse numbers), and the comma ',' (used for verse lists). Additionally, numerals in non-initial position are not permitted in book names (i.e. '3John' is valid but 'Psalm151' is not).
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