I think that the one step in that set of instructions is misleading. When you create the virtual device, you have to give it a name. He used TEST. I used myphone. Whatever name you use, when the emulator creates the virtual device, it SHOULD create a folder in the .android/avd/ directory which is equal to the device name that you use. In my case, the directory structure looks like .android/avd/myphone.avd I put the system.img file in the "myphone.avd" directory/folder.