Hiya Simon,
I think the file.ext is the image/file/etc. that you want to be showing in the lightbox. In other words if you have a photo you want popping up in that colorbox, use that file's name. Since it can use more than just image files it may have other extensions (ext = file extension) so whatever the full name of your file would be is what goes there. Hopefully that helps?
As for where to put that, you put that exactly where the instructions have the file.ext in them, as in the line in number 30-4 of the instructions, the below bolded part is where that name of your file goes. Keep in mind that if it's not in the same directory as the colorbox files you'll want to put the full link in there instead of a relative link:
<a href="
file.ext" rel="example1" title="Caption text">Link Text</a>
href=" " is exactly the same as if you were adding a link to your site rather than the colorbox so treat it that same way.
rel=" " tells the colorbox which setup to use. If you look in the colorbox files you downloaded you'll see there are multiple example folders. Each of these will most likely display the colorbox a little differently so you should test which one(s) you like and use them. You would upload the folder(s) (I would say just upload them all so you always have them available) and then reference inside the
rel=" " part of the above line which one you want to use for that particular image or file. If you put example1 there it will display it with example1's settings, CSS setup etc. and if you put example2 it will use the settings and files inside the example2 folder and so on.
title=" " is of course just what the example says, a Caption to put on the image mouse over.
Link Text being what you would want to actually display text wise either on or below the photo, I'll assume below.
Please let me know if any of this is incorrect guys, I'm just looking at the files and making assumptions based on logic, but that doesn't mean my logic is always correct lol. Looks bout right to me is all I can say. Let me know if this answers your question at all too please Simon