In the Paths page, the default paths to the different kind of files are set.
By default they point to the installed subdirectories. Normally you don't have to change any of them.
Common: Is the location of the default MSD files such as fixtures, textures, demo scenes etc...
By default the location is "C:\Documents and Settings\All Users\Documents\MSD4"
The other fields are the locations on user files, meaning the file you create.
When open a window to import or load something is MSD you will notice two buttons at the top left (User and Common)
Click one of the buttons to access the right folder set.
As a rule, put all the file you create or add manually to the user folder set and leave the Common folder as default.
Only add files to the common folder when updating from the official MSD library.
This will ensure the integrity of the files you use and also avoid that your modified library gets overwritten when updating the new library.