The SQL box doesn't really have anything to do with the setup for Dreamweaver. Here's how you should setup your site:
1. Local: Your local folder, like C:\My Documents\MySite
2. Remote. The remote host. If it uses FTP, provide the FTP details here
3. Testing. A (local) testing server. Can be on your local machine, or somewhere else like a machine in your network or a remote machine.
Now, when you create a new page, you can test it on your (local) test machine. When you're happy with it, you can put it live on your remote server.
In your Connection settings for the database, you can use the IP address of the SQL Server. You just have to hope (or check) that your host support connecting to this port as well.
What you should put in Host Directory depends on your ISP. Sometimes it's the root folder, sometimes it's something like /YourUserName. You should contact your host for more details.
Does this help?
Everyone is unique, except for me.
While typing this post, I was listening to: Everywhen by Massive Attack (Track 3 from the album: 100th Window)