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All text labels which are used by the component and applications from the component are defined in INI language files. This is best practice which is recommend by Joomla! team and this approach provides ability to add multi-lingual support to extensions. You can create a new translation or edit existing with help of Localise component or any similar extension which can be found here.

Language files are located in <joomla_directory>/language/<LANGUAGE_CODE> and <joomla_directory>/administrator/language/<LANGUAGE_CODE> folders. Where <LANGUAGE_CODE> is a language code. For example for British English it is en-GB and language files will be located in <joomla_directory>/language/en-GB and <joomla_directory>/administrator/language/en-GB folders.