"Use the previously existing library at the new location"
As you can see:
"new location" is a reference to the location you choose.
- Assume the "new location" is a pre-existing library, and use it. Add it to the list of libraries.
- Assume the "new location" is an empty folder, create an empty library there.
- Assume the "new location" is an empty folder, move the current library there.
To be honest, I have never loved the wording myself.