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If you mean the inner subfolder you found was called "generate_cover" rather than "generate_images", this folder is specific to the use of the "Generate Cover" plugin which I suspect you have installed. It would contain any cover images you want that plugin to use, not relevant to what you are trying to do.
Certainly the correct place to put new images you wish to override their Calibre equivalents for is in the \resources\images folder in your local configuration directory as you found through Preferences->Miscellaneous. For any others finding this thread, note that directory will not exist on most people's installations of Calibre, unless they have used a plugin that creates it such as Generate Cover or a few others.
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