Report settings for the Pick List are located in the Create Pick List task.  The Pick List Options can be selected on the Options tab and then saved as a report setting by clicking the Save icon and giving the setting a name.  Additional options can be given after clicking the "Select Orders..." button.  When the Select Orders for Picking option appears, click on the Pick Options tab.  You can also save additional settings in the Select Orders for Picking window as another setting.  

Jennifer Lane

Customer Support Specialist, Sage 500 ERP

Sage Business Solutions

Report settings for the Pick List are located in the Create Pick List task.  The Pick List Options can be selected on the Options tab and then saved as a report setting by clicking the Save icon and giving the setting a name.  Additional options can be given after clicking the "Select Orders..." button.  When the Select Orders for Picking option appears, click on the Pick Options tab.  You can also save additional settings in the Select Orders for Picking window as another setting.  

Jennifer Lane

Customer Support Specialist, Sage 500 ERP

Sage Business Solutions

But does not point the crystal report address.

Where do I setup so that the user is  using a customer report folder.

Depends on what version you are on.  There are support articles at customers.sagenorthamerica.com

which should give you the answer.  We are on 7.4 and you need to change the App.Config xml file.  It's located in the <Drive>:\Users\<loginname>\AppData\Roaming\Sage Software\Sage MAS 500 at least if you use windows authentication.  Older versions might need registry tweaks.  The support article(s) should explain all of that.