Hehe, welcome to the wonderful world of windows. There are sixteen ways of doing everything, but only 10 of them are the correct way.
As with everything else the meaning is in the context. In this context when it says the default directory it is refering to the directory the the Java JRE tries to load itself to by default. This will have nothing to do with the Space Empires directories or anything else.
Once you have loaded the java JRE the PBW RTC client program (It will ahve a .jar extension) goes in your default Space Empires IV directory, that is the same one withthe Se4.exe program.
Hope that clears it up.
Geoschmo