Taking a guess here, but wondering if you think that setting up the file/directory monitoring there pertains to machines other than where splunk is currently installed on. That Data Input screen for Files & Directories is referencing the actual host that splunk is running on - and as ftk mentions the files/directories you want to monitor need to be accessible by the account splunk is running as.
However, I think you are talking about monitoring files and directories on remote machines to get indexed into splunk. If so, you'll want to look at 'Forwarding and Receiving' as the best option.
http://www.splunk.com/base/Documentation/latest/Admin/Aboutforwardingandreceiving
Hope that helps,
scott
Splunk will use the credentials its process runs under to access any configured monitors.