The "custom_water_flowing.png" and "particles.png" must not be placed in a folder, it is to be placed in the same area as terrain.png.

The "water.png" goes in the misc folder.

The "Terrain File Water" is for replacing the water within the terrain.png, but is not necessary if you are using animated water.

The "rain.png" goes in the environment folder.cessary if you are using animated water.

The "icons.png" goes in the gui folder.