It doesn't go in your game folder, you can save it to your local drive wherever you want or in the place you normally save downloaded stuff.
What you'll get is an installer that you run and direct to the SH3.exe file in your game folder, and it installs the patch to the game for you.
I can't remember if it comes zipped or not but if so just extract it wherever you saved the download and then run the installer for the patch. You want the one that is for the Starforce-free version of the game, since your copy is new and won't have Starforce DRM on it.
Edit: on second closer reading it looks like you're already trying to run the installer and it's not installing? What it patches, specifically, is the SH3.exe file, wherever that's located in your Steam installation.
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