All this is referring to is dragging the file to the SD card and not dragging it into a folder you have created onto the SD card. Say you open up your SD card on your computer, drag the file right there. Don't go into any other folder.
It sounds like you're trying to install 2.2. This is an easy process once you understand a little.
My simple instructions are on this page. Along with the link that's in this thread with the file. I tried to make the instructions as simple as possible because some of the others just assumed people knew what some of these terms meant. Like you are asking, the root of the SD card.
http://forum.androidcentral.com/droid-incredible/31738-ota-link-5.html