I was given 1 bitcoin in a paper wallet as a gift. How do I now convert this bitcoin to spend it?
You can buy all kinds of things from https://www.bitcoinstore.com/
You could also buy gift cards using bitcoin at http://www.gyft.com/
Finally if you want to sell your bitcoin for your local currency, you'd need to open an account at a Bitcoin exchange such as https://www.bitstamp.net/ - however this is the solution I like less because they require you to send them some personal information like your ID or bank account information to overcome fraud.
You can spend it on wide variety of products on www.overstock.com
Look for other places accepting bitcoin using http://coinmap.org/
Or as already suggested, use an exchange like bitstamp or btc-e.
But first you would probably want to import your paper wallet to make a transfer. Take a look at https://blockchain.info/pl/wallet/paper-tutorial
There's a nice video here that shows how to pull the BTC from the paper wallet to a Mycelium Android wallet.
I would recommend you only pull out what you need to spend at the appropriate time, or follow the instructions in Mycelium to backup the wallet, just in case you lose your phone you don't want to lose 1 BTC with it.