Every web server will have a "document root" directory, even if it goes under a different name. It will be configurable and the documentation for IIS should tell you what the default is on your given flavor of Windows. Is there a test page you can hit to test out your setup?
Please create a file called test.php with the following contents:
<?php phpinfo() ?>
Move this into what you think your document root directory is, and then hit your web server. (You can use your own computer for that. Just specify "localhost" as the host name. Something like http://localhost/~user/
) If your setup works (both IIS and PHP), you will see a page listing a ton of stuff about PHP.
As a second step hit this test page from your iPhone and copy the URL.
Once you have this working, place upload.php next to it and paste the URL into the custom server field in either the sharing page of the app, or on the Settings | ND1 page, removing the test.php filename.
Things should work then.
(By the way, upload.php doesn't reference any directories other than "uploads". That is, there's no attempt made to obtain the path to document root, or use it. This is implied by simply referring to "uploads" as relative path.)
For safe-keeping, you can also email the folder contents to yourself. (Top button on the sharing page.)