This is an advanced topic.
By default, playlists will reside in your \Program Files\Notation\Songs directory. The playlist is actually just a simple text file with the list of songs in it. The playlist has a .ply file name extension. If a song in the playlist belongs to the same directory as the playlist .ply file itself, then just the name of the song is listed. Otherwise, the full path name of the song is listed in the .ply file.
If you intend to move a playlist and its song files to another directory, perhaps on another computer, then it is a very good idea to keep all of the songs in the same directory as the playlist. That way, when the playlist .ply file is moved to the new directory, the song files it refers to will be assumed to be in the same directory, which is what you'll want.
You can optionally archive a playlist .ply file, along with the song files that belong to it, in a .zip file or other type of archive file. You might find that to be a handy way to send a list of your songs to another person. Note, the recipient of your song files does not need to own a copy of Notation Musician or Composer. He or she can view, print, and play your songs using the free Notation Player.
Why are the song file names in a playlist .ply file missing the file name extension .not, .mid, or .kar?
Suppose you add a MIDI file to a playlist. Later, you might decide to edit the song, and save it as a Notation .not file in the same directory. It would be inconvenient if you had to remove the MIDI file from the playlist and add its corresponding Notation .not file back to the playlist. Instead, the playlist .ply file stores just the name of the song, such as "Minuet", without the file name extension, such as "Minuet.mid". When you resave Minuet.mid as Minuet.not, the playlist .ply file will automatically refer to Minuet.not instead of Minuet.mid. When Composer looks for a song file referred to in the playlist, it always looks for the file name with the Notation .not extension first.