You have to create the folder first, and it can not be inside the FMS folder structure.
Next you have to assign it the right privileges so that FMS can write to it, owner needs to be "fmserver" and group "fmsadmin". If you don't like Terminal to do this then download the great BatchMod application.
"The path filemac:/Macintosh HD/Backups/ provides an error message 'path not found'."
does this path actually exist? Do you have a folder "Backups" on your Macintosh HD? Somehow I doubt it. File paths are explicit. The full path must be written. You could try creating a folder in the FileMaker backups folder called Progressive Backups and use that. In the admin console you can navigate to the folder and not need to write it out.
Wim, I Guess I stand corrected. All my FMS backups are on an external drive and not in the library/FileMaker server etc folder structure so I've never had to navigate this.