I have an "images" folder in the same folder as my catalog. This may not be as efficient as possible, but is sufficiently fast that I've not bothered to change it. When I bought a new Win 7 computer a few months ago, I took the hard-drive from the older machine and installed it on the new one.
When I first started LR on the new machine, I simply opened the old catalog. Everything went perfectly.
One can simply copy the LR catalog (x.lrcat) to a new location and open it from LR and LR will be perfectly happy as long as it still has access to the images. If you copy the entire folder that contains the catalog, you will get the previews and settings (if you have checked the "keep settings with catalog" checkbox.