From BlenderWiki

File Paths

Under this tab you can choose the default paths for various file load dialogs. Remember that the // at the beginning of a path means “where the .blend file is currently saved”. / at the beginning means the top directory of the currently active drive (or root one under unixes).

Relative Paths Default

This button is at the top right of the panel. If you enable it, the internal path to any ancillary file, such as an image texture, will be saved, not as an absolute path starting with the drive letter or root, but as a relative path starting at the location of the .blend file. This enables you to zip and move entire projects from one PC to another, and all ancillary files will be found, even if on PC A you save the .blend on drive C: and on PC B you save the .blend on drive D:. Use this feature if you think you will have to be sharing or working on the project across multiple machines.

YFexport

Blender communicates with YafRay by exporting an XML file. This entry tells Blender where to save it – your OS temp directory might be a good choice (C:\tmp\ or /tmp/).

Fonts

Where to find TrueType fonts, e.g. C:\Windows\Fonts\ or /usr/share/fonts.

Render

Where to put rendered output, like for example //render/.

Textures

Where to find pictures and images for texturing surfaces. You should point it to your main picture local library. As an alternative, you can use a local copy of the textures relative to your project (starting with //, remember?), if you want to keep it portable.

Python Scripts

Where to find Blender’s Python extensions. If left blank, Blender uses the distributed scripts which are located in your install directory under the .blender/scripts directory.

This path should not end in a slash – this is an exception…

Tex Plugins

Where to find texture plugins…

Sounds

Where to find sound files for soundtracks and sound effects. Same remarks as for Textures path.

Seq Plugins

Where to find effects plugins (those used by the Video Sequence Editor)…

Temp

The generic trash can, where your exit session is saved (quit.blend) as well as auto-save files. Use your OS temp directory, like C:\tmp\ or /tmp/…

You can manually enter a path, or LMB click the little file folder icon to the right of the field to use Blender’s File Browser to navigate you hard drive/network. Doing this is recommended in order to avoid typos.

If any folder name changes, or the folder is moved or deleted, you will have to come back here and change them again, since Blender has no way of being informed of those changes.