The real question though is: What does VLC do if you specify a non-existent folder to save the snapshots to? Couldn't find anything in the instructions about this. It would be nice if it warned about it.
I wasn't sure what the answer was to your question so I created a folder on my machine and then browsed to its location, selected it and then deleted the folder. Next step was to take a series of snapshots to see where they would go when vlc couldn't find the deleted folder.
Basically, nothing happened. Everything search couldn't find any of them so I thinks it's safe to say that in the event that the location doesn't exist all snapshots will be discarded.