I am new to this and am very impressed by the software. However, I don't understand where the files are when imported into the respository. Is the respository just links to the physcial address on the hard drive, or does it actually make a copy of the file and place into the respository? If so, how are the files saved?
On next release, efolbrecht, we've change the "import documents" term to "import from zip" that's more clear. Really this check box option indicates that you're uploading a zip file and OpenKM after uploading unzip and recreate all zip structure ( including folders and subfolder ).
About where documents are stored, by default configuration are stored under some internal structure on $JBOSS_HOME/repository.
It only can be changed at first time running Jboss server, at this moment OpenKM creates repository etc... when repository is created you cannot change it.
If you're trying with some database configuration for example or other folder repository name only it'll runs at first time running.
Repository folder can be changed using the property repository.home in OpenKM.cfg file. Also you can store the repository in a database if you want. See PersistenceManagerFAQ for more info.