You do need to have a working website that points to the install directory. This tutorial,
How to install DotNetNuke 4.5 to Windows XP Professional (Using IIS) should help you. I would also recommend that you install the DNN 4.5.3 version because it has a nice interactive "wizard" that helps you at every stage of the install process, including connecting DNN with your database.
You'll create a directory, and then point a website at it. Then copy (or extract) the DNN install package into that directory. You may also need to make a copy of release.config and rename it to web.config. You'll also need to create a new database.
Then, when you browse to the website that contains the install package, the wizard should start up and guide you through the installation. If the wizard doesn't start, the most likely explanation is that you don't have the website configured correctly.