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This would create a repository.xml file in plugins bundles folder.

QUESTION: Won't it create a repository.xml file in "bundles" not "plugins"?

Using the new repository location

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Continuing with the example, you'd enter /Users/auser/plugins. QUESTION: Is this right? YES

Open IGB and select the Plugin tab. If your repository was successfully added then it should show your plugin there. You can select your plugin from there and install it.

QUESTION: What do you do if you want to deploy the plugin repository on a server? Do you just put everything in some Web directories? What URL do you use? 

Yes, put everything in a web directory. Url would web accessible path to that directory.