
All you have to do is choose the "Create Library..." button and you are given the option to choose a place and a name for it.
What you need to know about what this means: This gives you the ability to have two separate libraries on one computer under one user. You can NOT open iTunes and use both libraries at the same time. This option simply lets you make, or choose am iTunes library where your music is kept. Preferences for each library are kept completely separate. The only downside I see with having multiple libraries is that whenever you open iTunes you will have to hold option and choose your library.
For those of you with more than one person using the family computer, this is a rather viable option if you don't want to have different user accounts.

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