QUESTION 1: Where do I put my floppy images?
Anywhere you like, actually.
The default floppy images that come with UBCD resides in "images", and the original customization instruction says to put your floppy images there also.
But later, someone suggested that it is better to create a different subdirectory for your own images so that you can upgrade to a new version of UBCD easily without losing your custom apps. So the instructions for PM8 suggests "recuse", though you could just as well choose to create a subdirectory like "custom".
QUESTION 2: What file extension is right for my personal floppy images?
The extension does not matter at all, as far as I know. You can call it IMG, IMA, IMZ etc. It does not matter, though by convention, UBCD uses IMG for normal images, and IGZ for gzipped compressed images.
QUESTION 3: How do I edit the custom.scn file?
Something like the following should do the trick:
if ($lastKey == key[f1]); then memdisk /custom/pm8.img