TC01
Deity
The usual location is in your documents folder:
~(My) Documents\My Games\Sid Meier's Civilization IV Colonization\MODS
What you also could do is go into your program files directory, Program Files\2K Games\Firaxis Games\Sid Meier's Civilization IV Colonization, or wherever Colonization is installed in Program Files, and create a Mods directory there. Civilization IV has one in that location, but for some reason Col does not.
I don't know how much it matters, I think it's just preference, but I find it easier to work in the actual program files directory rather then in the My Games one. (especially since I mod and have access to all the original game files).
Plus, there were problems in Civ 4 when you placed files in the CustomAssets folder in this area. Don't know if that does or does not apply to the MODS folder as well.