You don't need to store CSS as files. If you choose to do so, you need to do what it says:
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Normally this is accomplished by CHMODing the directory 777
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The directory is /clientscript/vbulletin_css
The place to edit the CSS is where I said:
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style manager > find style > edit templates > css templates
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Did you find the Edit Templates area? Double-click on CSS Templates to expand that and then you will find a bunch of .css templates.