If at all possible I would encourage you to use a distribution 
package of Terminator rather than the source tarball (ie I hope
that most users never read this file).
You can find instructions for many distributions at:

  http://www.tenshu.net/terminator/

If you must install from source, install python vte bindings 
("python-vte" on Debian/ubuntu) and run:

    ./setup.py install

Note that this is not as complete as a package install at the moment 
e.g. GNOME menu/icon integration will not happen and there is no 
uninstall option.