Assuming the language you want to translate OpenTTD to can be written using the ISO-Latin-1 charset, you can do it easily using the tools provided here. english.txt contains the original English-US language strings,

Lifted from the Readme:

8.0) Translating:
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See http://www.openttd.com/translating.php for up-to-date information.

8.1) Guidelines:
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Here are some translation guidelines which you should follow closely.

    * Please contact the development team before begining the translation process!
      This avoids double work, as someone else may have already started translating to the same language.
    * Translators must use the charater set "Windows latin-1", also known as ISO 8859-1.
      Otherwise, some characters will not display correctly in the game.

8.2) Translation:
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So, now that you've notified the development team about your intention to translate
(You did, right? Of course you did.) you can pick up english.txt (found in the SVN repository
under /lang) and translate.

You must change the first two lines of the file appropriately:

##name English-Name-Of-Language
##ownname Native-Name-Of-Language

Note: Do not alter the following parts of the file:

    * String identifiers (the first word on each line)
    * Parts of the strings which are in curly braces (such as {STRING})
    * Lines beginning with ## (such as ##id), other than the first two lines of the file

8.3) Previewing:
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In order to view the translation in the game, you need to compile your language file
with the strgen utility, which is now bundled with the game.

strgen is a command-line utility. It takes the language filename as parameter.
Example:

strgen lang/german.txt

This results in compiling german.txt and produces another file named german.lng.
Any missing strings are replaced with the english strings. Note that it looks for english.txt
in the lang subdirectory, which is where your language file should also be.

That's all! You should now be able to select the language in the game options.