So, Im in the Oblivian construction set i go te creat a new item:
For me to do this i hve to give the file location of a model(NIF) and image(dds. What directory do i go to to find them?

Extra info.
I downloaded Oblivion to the programs directory and Im usis a PC.

You have to unpack the BSA files. Do a google search on Oblivion unpack BSA since there are several programs that will do this for you.
Or someone else will come along and recommand a program that they use.

If you want to use an existing nif it's much easier to edit the existing item, provide a new name, and create a new formid by choosing YES when it offers to do so. Do not choose NO, as that overwrites the original definition instead!

So bacicly duplicate the item first then edit its atributes is the easiest way?

Yes, but note that the texture info is part of the nif, so if you need to change that, you'll have to unpack it anyway. If you just want e.g a copy of the steel longsword with better stats, but same appearance, clone and edit.