the Checkout directory should be your current directory
the rest of the defaults should be fine.
click ok to check it out.
If this is a website based project you need to add a webshare for this folder
right click on the folder name and select "Sharing and Security..."
select the web sharing tab
click the radio button for "Share this folder"
When the "Edit Alias" dialog box appears chose an alias (the default is usually good) and check the application permissions (.Net applications need "Execute (includes scripts)" and click OK