Envato explains how to properly install your wordpress theme here:
However, just in case the above link won't work anymore some time in the future, we also created a tutorial here.
After you downloaded the zip archive from themeforest, before trying to install the theme, you need to UNZIP the archive with winrar or winzip or your own archiver program.
Inside the unzipped package you should be able to will find the following folders / files:
1) documentation - contains the theme help file that explains how to configure the theme
2) psd - contains all photoshop files that were created when the theme was originally designed
3) license - the mandatory theme license documents
4) theme name - depending on what theme you purchased, it might be mediaconsult, aquitaine, avantgarde, innovaconstruct, etc. and inside this folder are your theme files that need to be installed.
5) child theme(optional) - some of our themes have a predefined child theme. To learn how to use it to make customizations, please consult the associated documentation. It's labeled as themename_child, for example: aquitaine_child, royalty_child or avantgarde_child.
6) export xml file(optional) - some of our themes come with the demo content xml that once it's imported in your theme, it will replicate most of the theme demo content(pages, posts, categories, menus, but no widgets).
What interests you most when installing the theme, is the 4) theme name folder that contains your theme files that need to be installed. You have 2 options to install your theme:
a) via WORDPRESS backend
First make a zip archive of your theme name folder with your arhiver. For example, if the theme is mediaconsult, archive your mediaconsult folder to mediaconsult.zip. Then go to Appearance -> Themes -> Install theme tab, click on upload, browse, select your mediaconsult.zip and click on "install now" button.
b) via FTP
Connect to your server using your FTP client(we recommend filezilla) and upload your 4) theme folder (no need to archive your folder like in the first place) to /wp-content/themes/ path inside your wordpress files. Examples of correct path to your theme files would be: wp-content/themes/mediaconsult, wp-content/themes/aquitaine, etc.