It's up to you Robert. If you put an entry in the "Domain Hosting Settings" default option, then that directory becomes the "root" of the domain's webspace.
So, if I have a domain registered, I can enter "fred" in the Domain Hosting Settings option, so that the line reads /htdocs/fred. You then need to create a directory called "fred" on the FTP server. Place any docments in there that you wish to be served from your domain. So, if you create a file called index.html and put it in /htdocs/fred then http://www.yourdomain.co.uk/index.html will load that file.