To enter Decoration Mode, simply enter your house or yard and click on the small icon attached to the lower left corner of your radar map, just next to the housing panel icon. You will see small areas surrounded by a faint blue glow. These are the only places where decorations can be added, and each one is restricted by type. For example, an item labeled as Large Wall can only fit into a Large Wall spot. Once you decide what you want to place in the appropriate spot, simply right-click on the blue glowy area, drag the icon from your inventory (you'll see usable items outlined in yellow) over to the empty icon slot in the decoration window, and from there you can rotate to your heart's content.