Using Windows Explorer, the program that one typically uses to view the files on a Windows computer. For example:
1) Right-click the Windows "Start" button - a context menu appears. Left-click "Explore" from that menu. A Windows Explorer window should appear, showing your computer's file system, and probably starting in someplace silly like C:\Documents and Settings\UserName\Start Menu.
2) Pick a location you can remember. I'd suggest left-clicking on "Local Disk (C
" in the left pane of the Windows Explorer window.
3) Right-click in the right pane at the location you want to create your temporary folder. A context menu will appear. Left-click on "New..." and a secondary menu will appear. Left-click on "Folder" and a new folder will be created in the currently selected location. The name of the folder will be highlighted, with "New Folder" as a suggested title. Type something you'll remember, like "argh", and hit Enter.
4) Go back to the DirectX installer and when it asks you where to extract temporary files to, use the DirectX installer's file-selector interface to browse to your new folder and tell it to use that.
5) After DirectX is re-installed and hopefully actually working, you can probably go find that temp folder and delete it to save disk space.