The ToC assumes all the files it points to are valid filesystem locations, but I don't believe it enforces any particular folder structure.
Import the ToC file itself, and it will drag in the linked files and bundle it as an HTMLZ (ZIPped HTML).
Personally, I would recommend importing the files directly into the Editor (more control). In fact, I would suggest you do your HTML editing in calibre's Editor -- it makes a decent HTML editor and has tools to directly facilitate the needs of an EPUB.
