A BlueZone Installation Source Directory is simply a folder on your hard drive that contains all the BlueZone files that are necessary to install BlueZone.
It's created by copying all the files located in the BlueZone Desktop folder on the BlueZone CD image, to a folder that you create on your hard drive.
The primary purpose for creating a BlueZone Installation Source Directory is so that the BlueZone Administrator can edit the SETUP.INI file.