Capped 53 times for Spain, the full-back has signed a two-year deal at Ewood Park.
He decided to move to England after his contract at Real Madrid was cancelled by mutual consent.
During his 10-year stint at the Bernabeu, the 33-year-old helped the club to two Champions League triumphs and four league titles.
Allardyce hopes Salgado can make a similar impact to Fernando Hierro, who he signed during his time at Bolton.
"Michel is an outstanding player. This lad will bring an awful lot, not just on the field but to the club in general," Allardyce told Rovers' official website.
"It will give us bigger status. He will demand more from the players rather than me or the coaches.
"I want him to bring a Real Madrid attitude to the dressing room. That is what Fernando did at Bolton and we all benefited. Hopefully that will be the case with Michel."
Blackburn are now waiting for international clearance before Salgado can make his debut.
He is heading back to Madrid next week to say goodbye, as a match in his honour has been arranged against Rosenborg on Monday.
Salgado is relishing the challenge that lies ahead after revealing he almost moved to England five years ago.
He said: "I had a chance to come to Chelsea but I was lucky too because my team was Real Madrid.
"I love the club, I was there 10 years - it is a lifetime. I am proud of playing for them for so long.
"Now I want to enjoy the next two years, playing in the Premier League. It is one of the best in the world.
"Not only that it is pure football - fantastic games and a fantastic atmosphere. This will be a good experience for me, my wife and children. I have joined a historic club."