First you'll need a free Xbox LIVE Membership.
- In the Dashboard, select My Xbox, Sign in, Create a Profile and then follow the on-screen instructions to create a new account
- Select your Profile in My Xbox, select Join Xbox LIVE and then follow the on-screen instructions to create your free account
- Press the Xbox Guide button (round silver button) on your controller
- Navigate to the Marketplace tab
- Select Redeem Code
- Enter your Code and enjoy!