Correct. You'll need to create the directories "nginx" and "yourdomain.com" if they don't exist already; they're not created automatically.
Any file in the directory at all is included, actually. The directive in the server configuration looks like:
Note that, if you've created or changed any configuration files in there, you'll need to get nginx to restart to make it pick up the changes. From a VPS admin user, run "sudo /etc/init.d/nginx restart".
As far as how to make "friendly URLs", that'll depend on your application and how it dispatches requests. There are a few examples on the DreamHost wiki which you may be able to draw inspiration from: http://wiki.dreamhost.com/Nginx