Instructions
Download a high-capacity screenpack, such as Ziltama's Mugen Coruscation screenpack, which boasts 675 character slots.
Go into the "data" directory folder of "Mugen" and locate the "select.def" file. Create a copy of "select.def" and place it on the desktop for safe keeping.
Unzip the zip file containing the new screenpack using a file compression program such as Winzip or Winrar.
Select all of the folders in the new screenpack and paste them into the "Mugen" directory folder. Most screenpacks will contain folders with replacement files for the "data" and "fonts" directories. Windows will ask if you wish to merge the folders and overwrite duplicate files. Overwrite them all.
Take any loose files not in a folder from the screenpack and move them to the correct folder. Files with the .fnt extension go into the "fonts" directory, MP3 files go into "sound" and all other files go into "data."
Open both "select.def" files -- the original backup and the newly installed -- using a text editor like Notepad. Copy all the characters from your original file into the new one and save the file.
Start "Mugen" and enjoy your new character slots.