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The directory select can select the (sub)directories created by FTP. The root directory, where it starts from is found in the preferences (album directory and user pictures directory) and is by default albums and userpics.
So you have /modules/xcgal/albums/userpics/. In this directory you create the directory for the users by adding 10000 by their User ID. Eg. the admin uid=1 gets 10001 as directory.
Create it with FTP. In this directory you can create and organise your picture directories as you like with FTP and upload pictures into it.
Check that the directories are writable, but if albums and albums/userpics are, then the created subdirectories should get these attributes automatic.
You will then find the created directories in the overview from XcGal.