You have to upload this picture to the images folder, in its subfolder smilies. Remember the name of the file. Then set the new smilie title and the emoticon to be replaced with the picture that is uploaded in the advised folder above. In the image path, please, fill in images/smilies/*the_name_of_the_file.jpg and replace the bold text with the name of the file that you have previously uploaded.
Click on the [Add smilie] button and you are done. A new smilie is added.