How do I install packages manually? I mean extracting the deb contents and placing them in appropriate directories, creating appropriate files, etc.
What all files do i need to edit, add?
I want to be able to list, update, delete the app using apt later.
I want to achieve the same thing dpkg/apt does, but manually.

Extract you use dpkg with "-x'
Example
dpkg -x somedebfile.deb /home/user/extracted/

That will place the content in /home/user/extracted

You can add, remove files in that directory, then use dpkg-deb to rebuild a deb file.
You will need to create a DEBIAN folder in /home/user/extracted which contains control file and changelog file.

I suggest looking up instructions for creating deb files for more information on this.

I don't want to create deb package. I have a deb, i want to extract it and install the package into the system by copying it into the proper directories.

I tried extracting and copying the files into /
I also copied the files in DEBIAN folder into /var/log/dpkg/info with appropriate name, also pasted in the .list file.
But it doesn't work. Some apps are usable if done like this (some don't work, like dropcache-free all always says no visible effect, devel-su says can't set groups), But I cannot uninstall the packages later. I cant even list it using dpkg -l.
So are there any files that dpkg modifies which i have to by hand for this to work?

you need to execute scripts, and add entry to dpkg status file

Exactly.
what are these scripts? where are they? if u are talking about postinst, preinst, etc located in the DEBIAN directory, then some packages (like dropcache, devel-su, glol) don't even have these files in them, still they do not work on just copying the contents

And where is this dpkg status file located?
Also dpkg creates a .list file in /var/lib/dpkg/info, previously I installed the package and recovered the .list created by dpkg and used that
How do create that from the package itself, without installing it?

install package and check what and where is located

you are not exactly helping how do i do that??

OK, found the status file. i think it contains data from the control files of apps. Will appending data from control files and adding the status line work??
How does the system decide whether an app is uninstallable or not?

EDIT: never mind, found it i guess. its in /var/lib/dpkg/available. It has all the user installed packages' control data.

i dont think anyone is tried to do same as you doing, so you can only try it yourself, nobody can answer your questions 100% right

Making entries in dpkg status and available files make the packages visible in 'manage applications' view.
But on pressing uninstall, it says can't delete. Also x mark is not shown in homescreen edit mode.

EDIT: Adding entries in status file manually doesn't allow me to install any apps later. Its always installation interrupted.