No you don't have to create directories. You just have to install any packages you want. It will be missing things like a graphical interface, audio and video players, graphical internet browser, etc. It just lets you start from the bare minimum so you can only install what you need for a server (makes it more secure and faster that way). Say you want to run a web server, then you would do the server install and then "apt-get install httpd" to install Apache web server. At that point you have a fully functional web server but nothing else. If your purpose is to go ahead and have a graphical desktop then you could "apt-get install gnome" and you'll have the gnome desktop but none of the programs (such as the audio and music players). To get the additional programs, after installing gnome you could then apt-get install whatever else you want.
Maybe you should just give it a try and see for yourself.