Permalinks

I have searched the net and this board.. but I don’t understand this.. I found the below on a website..
I don’t understand what I am suppoused to paste and where. (“To use it, go to WordPress->Options->Permalinks and select a permalink structure by pasting and modifying the default. “)..
I know what to do when I get the .htaccess code, but what I don’t understand is how to get that code..

Turn on pretty links. This is a two step process to turn wp/index.php?postid=12 into wp/date/postname, which is easier for users and search engines to read. To use it, go to WordPress->Options->Permalinks and select a permalink structure by pasting and modifying the default. Then, when you click the button, make sure to copy the code into a file named .htaccess and place it in your wp root directory. The .htaccess file will rewrite your links for you, from old and ugly to new and shiny.