You have to open patch.zip, select all the files inside, and place them within your main PS directory (usually C:\Program Files\PlaneShift Crystal Blue). When you get a prompt asking if you want to overwrite, click on Yes.
If you get a message saying that files are currently in use, reboot and try again.
If when you try to extract files from the patch.zip to place in your PS folder you get a prompt asking you for a password, try putting those files into another temporary folder or another drive entirely first, and then from there into your PS install directory.