Ok,
You can install WordPress in the ROOT directory.
e.g. http://www.mydomain.com/
and you can also install it in a sub-directory
e.g http://www.mydomain.com/wordpress/ (for example)
In the first option you just load all the files and folders that comes inside the install pack TO YOUR ROOT .
In the second option, you put them INSIDE another folder that is inside your root. (you can name this folder whatever you like : Blog, wordpress, wp, jerry, whatever)
Personally I prefer the second option, It has many advantages, that I am not going to detail now, But some that I AM going to mention is 1. more order on server. and 2. possibility to install WP , configure and play, without affecting the main domain, until you are ready to open the blog/website. 3. possibility to install many different installations on one web server without confuse.
Just remember that if you do choose the second option, you need to go to the general settings in the admin area, and tell WP where is the URL for install directory (WordPress address (URL)) , and where is the URL for the blog to be seen. (Blog address (URL))