Yes, you should always extract Daz content outside your content directory first, and go in and have a look at how the parts that show up in DS Library are sorted - they are frequently very badly organized. You can check a lot of content at once by just extracting all of it to the same folder and checking everything first. Either way, once you've had a look at it, you can drop it into its proper location.
As for the OP's question, I've been using DS so long, I can't even remember how to describe the solution to his problem; it's second nature at this point. (opens DS and checks) Okay, yeah:
Open your content library (Window>Panes>Content Library). In the tree on the left, scroll up until you see "Daz Studio Formats." Right-click that and select "add a base directory." Base directory by default is "Content" in your Daz Studio install folder, but you can select any folder you want, on any drive/partition.