This addon is a plugin. You need to extract it to your /plugins folder to install it.
Adds an Unread-Discussions Label to menu to show only unread discussions. Additionally, allows user to display or hide discussions that have been read with a toggle button. The Button is placed to the right of Discussion Tabs on the Discussion Listings Page. see Readme.txt to modify button text and menu item text
Since this feature (much improved) is now available in vanilla 2.1
I WILL NO LONGER SUPPORT THIS PLUGIN.
Since it is impossible to know if a user who is not logged has read a discussion. You must be logged in for it to really be valuable.