How to make USB drive as local repository

You should build a repository in a local directory and point a file: URI entry to your APT sources (see URI SPECIFICATION in man sources.list):

deb file:/home/user/repository

To make apt work, you need to create a list of packages (Packages.gz) for APT to consume. This is explained in detail here. For your case, it should be quite easy. I refer you to the "Trivial Repositories" section of the manual. It should be as easy as changing to, say, /home/user/repository and running

dpkg-scanpackages binary /dev/null | gzip -9c > binary/Packages.gz

Then after a apt-get update, the packages should become available. Perhaps if you want to make this source take precedence over others, you need to assign it a higher priority; for that see the APT manual pages.

I don't think there is a way to add this as a repository but you can use it to install the packages by copying the contents to your /var/cache/apt/archives. To do this, press alt-f2, enter gksudo nautilus and do the copy. Once you have done, make sure you close the file manager window because it is not a good idea to use the file manager as root except for the tasks that absolutely require it.

To view/install these packages, run System -> Administration -> Synaptic Package Manager, click the 'Origin' button and choose 'Local' from the list.

In the future, you are better off using a program called aptoncd which can be installed from the repositories. It can be used to create a CD image that can be added as a software source. This image can be transported on a usb stick.

The easiest way to add the image as a software source is to burn it to a CD/DVD. You then need to go to System -> Administration -> Software Sources, click 'Other Software' and click 'Add CD-ROM...'.

If you want to use the ISO image as a software source without burning it, the process will be a bit more complicated. You will need to open a terminal Applications -> Accessories -> Terminal and run these commands:

sudo mkdir /aptoncd-mountpoint
sudo mount /media/USB/aptoncd.iso ~/aptoncd-mountpoint -oloop
sudo apt-cdrom -d=/aptoncd-mountpoint add

(source: http://www.debianhelp.org/node/10486)

If you want to download packages on one computer (Linux, Mac or Windows) and install them on an Ubuntu system, you can use keryx.