OK, so I actually braved SimPE!! I found two decorations with new meshes at Around The Sims 2 that I had to recolor. ATS2 gives permission to recolor, and to include the mesh. So I went into SimPE and did the "recolor" option...not the clone. Thats my first question, when should I use recolor and when should I use clone?
Then, If I want to submit this recolor for download, how do I do it? Do I take my recolor package and the original package and offer then as one download? Is there someway to extract the mesh from the original decoration and put it in my recolor? I don't want to break any rules or screw anything up.

You should use the recolor option, not cloning. And there is no need to extract the mesh or anything, just upload both your recolor and the original mesh package. Probably better to have them in separate ZIPs (or RARs), so that people who already have the mesh don't need to download it again. Then when people have both the original mesh file and your recolor file in their Downloads folder, it should work as intended.