Re: How does Zen-Cart "know" what your "custom" directory is?
When you chose the template via the Admin, you "told" Zen Cart what to use.
When I go into the admin > tools > template selection, of course I see that my template is "Custom Template" (that's the name I gave it), and I also see that the directory is "custom".
Please do not PM for support issues: a private solution doesn't benefit the community.
Be careful with unsolicited advice via email or PM - Make sure the person you are talking to is a reliable source.