Sorry about the nooby question, but, when I download and unzip a third-party python package, and then python setup.py install it thereby making an egg directory in site-packages, what do I do with the original unzipped directory in the Download folder? Should I sudo copy & paste all the test/docs/README files along with the rest of the corresponding site-packages files? I've typically deleted them but don't think that's a smart thing to do..
If all you want is to use the installed Python package, then you don't need the downloaded directory at all.  You can delete it if you like.  If you want to use it for its docs, then you can keep it, or move it somewhere else.  There's no connection between the installed package and the original unzipped directory you installed from, so you are free to do what you like with it.
What to do with the test/docs/readme files after the downloaded python package is built?