Don't feel alone as this is either easy or almost impossible to grasp a handle on.
If you understand the normal tree structure of a windows file system then this is no different. A couple of semi-visuals might assist(or not) : red is folders and blue is files;
For the template directory
there is a classic folder that exists)
Code:
includes
templates
classic
template_default
Add your template folder here
For languages
there is a classic folder and only one file)
Code:
includes
languages
classic
english
Add your template folder here
english.php (file)
For the english directory: (not all files listed)
Code:
includes
languages
english
classic
extra_definitions
html_includes
images
modules
Add your template folder here
account.php
account_edit.php
other files
So basically any file that you might edit that exists in the same leg of the tree should be placed in the your template folder. There are other folders like html_includes that also have a classic folder and those files that exist under this folder can be edited and placed in the your template folder that you would create/add there.
The one exception to the above is the templates folder. Here there is a classic folder but any file or folder and files that are in the template_default folder can be created in the your template folder(notice files and folders)
I hope that this will not confuse you more, but helps??