the ini is basically a text file, formatted as an INIT file. When the game loads up, it reads the contents of the text file to set the controls for each player. Every time you reconfigure your controls, it gets saved to controls.ini, and every time you load up the game, the controls.ini file is also loaded.
What might be confusing is that the ini files use numbers to represent keys. I think the numbers used are identical to the ASCII codes for Windows 7 keys, i.e. A is 69, B is 70, D is 72, etc. Keys 0-68 are things like left, up, left shift, space bar, etc. Someone should confirm that though.
Xalgon, do let us know if it worked.