How do I extract a password protected .7z file?

Install p7zip-full on the server first and then run this to extract a z7 archive called test.7z, encrypted with the password password:

7z x test.7z -ppassword

As JanC adds below, you can omit the whole -ppassword flag and it will just ask you for the password on extraction:

oli@bert:~/Desktop$ 7z x test.7z

7-Zip 9.04 beta  Copyright (c) 1999-2009 Igor Pavlov  2009-05-30
p7zip Version 9.04 (locale=en_GB.UTF-8,Utf16=on,HugeFiles=on,8 CPUs)

Processing archive: test.7z

Enter password (will not be echoed) : <<I typed the password here>>

Extracting  botch2

Everything is Ok

Folders: 1
Files: 0
Size:       0
Compressed: 118