How to add Local CSS

The location of the local content file is relative to the theme's root directory. So, for example, if you create a file called content.css and place in in the folder yoursite/sites/all/themes/litejazz (assuming that's where you've installed the theme), then you would simply specify 'content.css' for the local content path.

It does not default to the css directory?

If litejazz were set up in sites/all, but you wanted to host the file in your local files dir, would this be possible by manipulating the path?