I'm trying to install Grumpy's Balmora Apartment mod http://lovkullen.net/Emma/Apartement.htm

I've tried installing it, but have run into a problem. I've placed the texture and meshes folders into the respective data file areas, and now I'm supposed to "place the esp-file into the directory". What does that mean?

the esp, goes in the datafiles folder which is where the meshes and texture folder are as well.

Sorry, what's the esp? I'm new to modding :huh:

It's the main file made with the Construction Set.
It looks like a little red/white switchblade knife.

It doesnt' look like a dagger, and I don't know where to put it.

The .esp is the file type that morrowind uses for its plugins. If you set your folders view settings to detail the type will read ESP file (at least on windows 7). For some reason the file type does not always recognize the construction set and as such is not assigned the pocket knife icon (at least that is my experience again with windows 7). The "mod name".esp goes directly in the Data Files folder of the morrowind directory which should also contain the various folders (like textures, meshes, ect), the morrrowind.bsa file, ect. A good guide that worked for me is http://www.gamesas.com/index.php?/topic/106063-morrowind-mods-faq/page__p__1772641&#entry1772641 which is the morrowind mod faq sticked in the forum. Hope this helps in your install.