If you want to use branches and tags, here's how to do it.
1. The readme.txt file in the trunk must include the Stable Tag. In fact, you should always include that anyway, and set it to "trunk" if you don't use tags, just for clarity purposes.
2. Make directories under tags with the version numbers for names. Like 1.1, or 2.3.2, or whatever. Put copies of the whole plugin into these.
3. When you want to make a new versioned release, you do the following:
a. Make a new tag directory and put a copy of the versioned release in there.
b. Change the Stable Tag field in the readme.txt to contain that new version number. This should be in both that version and in the trunk directory. Old tagged versions should remain unchanged.
Basically, when the
WP automatic parser finds a Stable Tag in the trunk readme.txt, then it switches to that tag and continues processing everything from there. When you have a Stable Tag pointing to a tagged version, *everything else* it reads will be from that tagged directory. Nothing in trunk will matter to the automatic builder. You can continue to modify trunk as you see fit, and nobody will get an update notification. Until you make a new tagged version and change the Stable Tag to point to it, everybody remains oblivious.
Branches are basically not used by the Extend system, but you can use them if you like.