See an example of properly configured FTP settings on this screenshot:
FTP settings:
- Server address - IP address or domain name of FTP server. Do not use any prefixes or suffixes there, just simple name or IP.
- FTP user name/ FTP password - specify login information.
- Images directory - default directory where all product images are stored. This is most interesting setting, see below for more explanations.
- Downloads directory - default directory to store downloadable products.
- Use passive mode (recommended).>
Additional settings:
- Max FTP threads.
- Automatically download images - has to be enabled to download images automatically to preview them in Store Manager application.
- Cache images - has to be enabled to cache images downloaded to Store Manager.
Default FTP Directories:
- Product images - default subdirectory where product images are stored.
- Category images - default subdirectory where category images are stored.
- Manufacturer images - default subdirectory where manufacturer images are stored.
Images directory
Every FTP user has home directory - some directory on the server where user are connected to by default. Depending on specific configuration or FTP account settings it may be different from one server to another. After server address, user name and password specified you may just browse your FTP and select which directory used to store images. If you want to type path manually start from user home directory as it shown above.
Now let's see some product image:
With the settings specified on these screenshots FTP image path will be combined as
ftp://<ftp server address>/<ftp images directory>/<ftp product images subdirectory>/<product image name>
i.e.
ftp://oscommerce-manager.com/www/teststore/images/product_dir/dvd/the_matrix.gif
Note that this is FTP link but not HTTP. FTP link may not be opened in a browser but it is good as to use in Store Manager to download the image and show it in preview
There are two buttons for image edit. This one 
used to browse contents of your local folders and select an image. When you press OK button on product edit form it will be uploaded to "Images directory" on FTP. When local image selected this field will display local image path like C:\My Images\some_image.jpg but right after upload local image path will be replaced with image name some_image.jpg.
This button 
used to browse contents of FTP folder specified as "Images directory" and select some image stored remotely.
Downloads directory
This is just another FTP directory used to store downloadable products. Say your store sell electronic brochures, programs or some other things which may be downloaded right after purchase. All mentioned above for images can be applied to downloadable products.
Note: FTP account (settings - login/password) used for image and downloadable product management must have rights to read/write apropriate directories otherwise FTP feature may not work properly.
