The preferences are designed to allow you to edit and build your web site as easily as possible.
Firstly, enter the address of your server in the server field. This should be in the form:
http://your.server.address/
If you are using an Internet Service Provider, and rent space on their server (or for someother reason wish to manage a subdirectory on the server), then you will need to enter the path to your area on the server in the 'Server Path' field, eg:
web/user/yourArea/
or...
~yourArea/
Now that you have specified details about your server, you need to locate the folder (on any mountable volume) that you are going to use as a 'mirror' of your web site. It is in this directory that you edit the html documents for the server you specified earlier.
This folder should correspond to the top-most directory that you have control of on your server. Thus, if I control the whole server, then my root directory corresponds with the root directory of the server. If I rent space on a server, then my root directory corresponds with the top-most directory in my rented area (as specified in the 'Path' setting.