If you go to a course and look in the course administration block you should have a link repositories and at the bottom there it should say Create a repository instance - file system. You click there and select the directory you have already made on your server to be the file system instance for that course.
And to create a user one you click on your profile in the navigation block and at the bottom there should be a link "repositories" to do the same
And AFAIK users cannot upload files to the file system repository with the file picker because the file picker is for picking files FROM and not sending files TO.