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Drag the icon to your browser toolbar.
When you find a document on the Web or in a database that you want to cite, click on the tag in your toolbar, and complete the pop up window instructions to generate the citation. If you've also downloaded a .pdf, you can click under Files in the bottom of the right pane to add that .pdf to your Mendeley library.
You can drag pdfs into Mendeley as well; newer citations will generate their citation information automatically
Be sure to double check the information it provides, however. Mendeley can sometimes not extract complete or correct citation information.