There are two different ways you can interact with the Selenium-IDE (Se-IDE) from a development perspective

Development

Most of the time people reading this will want to use it in a 'development' mode. Working this way means you don't have to restart Firefox all the time to see changes; you just need to reload the bit of xul that had the overlay applied to it.

In order to do this you need to...

1. configure your Firefox profile along the lines of https://developer.mozilla.org/en/Setting_up_extension_development_environment
2. move code around in your local copy to be 'proxy' friendly. To do this you can use the s ide_proxy_setup task

./go ide_proxy_setup
or 
go.bat ide_proxy_setup

3. in your profile's extension directory, create a file called editor@seleniumhq.org and in it put the complete path to the trunk/ide/main/src directory
4. restart firefox

DO NOT aggressively do an svn add when running in the proxy mode and commit. It will make people cranky. A good habit is to do an se_ide:remove_proxy and then svn status and svn add.

Release

When you need to ship your / the changes and need an actual xpi file, you will want to do use the ide task. It will leave an xpi in trunk/build/ide called selenium-ide.xpi

go ide

If you are doing a proper release of Se-IDE and need it with the embedded version then the release_ide task is what you are looking for. It does ide and then renames it based upon the value of ide_version in the Rakefile.