Well, TC is asking where you would like to place your backup file (basically your /home/tc and a few other places).
If you want to save this file onto your usb stick, you need to identify it. Can you access the files on your usb stick? If so, open up mnttool and unmount the drives (turn the green items red) and see which entry either 1) corresponds to your usb stick or 2) does not unmount (turn red). If you can't access those files, check what happens when you mount those drives. Note the name of the drive that allows access to your usb stick.
This is what you would use as the back up device (your usb stick, with a name like "sdb1" or "sdc2" depending on the results of the previous test. The drive must be formatted as ext or fat, I'm pretty sure)
Also, you can check out the wiki: http://wiki.tinycorelinux.net/wiki:persistence_for_dummies