When your computer asks you to choose a target, it wants to know where you want to put the file on your hard drive, and what you want to call it.
To have Amazon convert the PDF to an Amazon e-book, you need to email the PDF file to your Kindle. If this is the first time you have done so, you need to go into your Amazon.com account ->Manage Your Kindle to do two things:
1. Get the email address of your Kindle.
2. Add your email address to a list of approved addresses that your Kindle can receive email from.
Circled in the picture below are the email addresses to my two Kindles, and below that are the two email addresses that the Kindles will accept email from. Where the arrow points is where you can add additional email addresses.
Once you have that done, just send an email with your PDF file attached to you Kindle's email address. Turn on WhisperNet on your Kindle, and it should only take a few short minutes for your converted file to appear on your Kindle.