If you're in iTunes 4, go to iTunes~>Preferences, and click the Advanced tab. You should see "iTunes Music Folder Location." You can set the location to be wherever you want.
The default is to put tunes into the Music folder in your User account folder. If you have all the ID3 tags filled in for the CD, it will then sort the songs into the following structure:
Artist 1 > Album 1 > Songs.mp3
Artist 1 > Album 2 > Songs.mp3