localhost is a TCP/IP alias name for your local PC. It maps to IP address 127.0.0.1.
The book makes the assumption that you want to run the web site on your own computer.
IIS has it's own directory structure that's visible from the web. The "virtual root" directory is the one that is accessed from the web as
http://localhost/.
This does not refer to your root folder on drive C. Instead, IIS lets you specify the actual directory on your hard disk that will map to the virtual root.
By default, c:\inetpub\wwwroot will be the directory on your hard disk that maps to
http://localhost/.
ThePhile is not set up to run from the virtual root directory. Instead, they want you to set up another virtual directory named "ThePhile" or "ThePhileVB" that will map to the appropriate directory on your hard disk.
This book isn't a good "first book" to study on ASP.NET. There are a lot of assumptions made along the way. You might want to pick up an intro book on ASP.NET before you try to tackle this one.
Eric