Playlist path sets where your playlists will be saved (as M3U files).. if left blank, RR will save your playlists to your default Music Folder.
If you have Playlist/M3U files make sure you can access that folder using RR's browser (this can be done by adding a BROWSE.RRL file if needed). When you click Select on a M3U File, RR will load the M3U as your playlist.
For the SAVE playlist function to work, you must have a skin that has the save playlist function in it (I know of none released with this yet). This is a button with the command "SAVELIST" that brings up the OSK and lets you type in the playlist name to save onto your Playlist path.