A mod is a modification to the game 'Homeworld'. Homeworld mods consist of replacing some original files and putting others in the appropriate directory.
What this gives you depends on the mods. New ships can be created by replacing the definitions for original ships with new onesor you can simply alter existing ships. The level of change can be simple such as changing the power level of the weapons to a complete replacement with new structures and shapes, changing how each ship is viewed in the game. It is also possible to subtley change some values such as the one for decceleration to give an entirely new way for the ships to move about - changing the way that the game is played.
There is a large modding community on the net with people who specialise in building new sets taken from Star Wars, Star Trek and Babylon 5 among others.
You can also change the decision making behaviour of ships already in the game. This can improve the AI of the game or change the balance between the different types of craft, say making strike craft more effective against capital ships. One mod I've played, actually rendered a surpisingly realistic physics engine.
Some of the bigger mods also include their own missions.

Mods are carried out by inserting files into the 'r1' and 'r2' directories. These files will define the visual characteristics of the ships. There will also be scripts for each ship governing their attributes. These would be things like their ship price, type, mass, speed, firepower and behaviour. Type, price, mass and speed are all simple values.
Behaviour consists of lots of fields with options for certain types of behaviour and also some values that govern how good they are at staying together in formation and how close they are prepared to get to the enemy.
Firepower options deal with the number and type of guns (beam or projectile) and where the guns are placed on the ship.

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