Cydia is a software application developed by Jay Freeman ( also known as “saurik” ) for the iPhone OS that allows the user to browse and download applications usable on a jailbroken iPhone or iPod Touch. Cydia usually packaged together with Jailbreaking tools/software such as redsn0w, pwnage, and blackra1n. It’s very recommended to install Cydia into your jailbroken iPhone.
If you jailbrake iPhone firmware 3.1.2 by using blackra1n, you can install Cydia by opening blackra1n app on your iPhone, select Cydia, then install.

Make sure your iPhone is connected to Internet.
1. Open Cydia on iPhone.
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2. As the first time running Cydia, you will see this screen “Reorganizing – Will Automatically Close When Done”:

3. When the process above finish, re-open Cydia app on your iPhone. It will ask “Who Are You” and determine how Cydia will be displayed based on your choice. Choose “User (Graphical Only)” is recommended for common users.

4. Cydia will be Downloading Packages to check updates, and let the process running.

5. When Cydia found any package are currently out of date, you will be asked to upgrade the package. Choose Complete Upgrade and Confirm.

6. Wait until the process complete, then Close Cydia (Restart)

7. Once again, re-open Cydia app on your iPhone. Now, it’s ready to be used for your iPhone.

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[...] Make sure your iPhone is connected to Internet and you have installed Cydia on your iPhone. [...]