Ben, if you want to upload files to a directory, you should put the directory outside of the tiki root install. So if you installed tiki at public_html/tiki then you'll want to put the folder outside of public_html or home.
Per the suggestion by tiki gurus here, I created one folder called "files" then two folders inside of "files" called "gallery" and "attachments".
After you do that, you'll need to go to your settings and toggle that drop down menu back to "Store files in a directory" and same with attachments, set it to "Store files in a directory".
Then you'll see a field where you'll need to set your directory path.
For example, if you have your tiki in public_html directory, and you created your files folder outside of the tiki root or public_html, you would set your paths like this.
the two dots indicate one directory up, so you're telling tiki with those two dots that you want tiki to look for your files up one level, outside of the tiki root.
The reason why you want your files outside of tiki root is for security purposes. Once you have all that set up, you'll also want to set your permissions within tiki for guests and users to view and or use your gallery if that is your intention.
If you have any issues with this come on back and I can clarify with screen shots.