I think the missing piece is you have to set up your Dreamweaver site to have a testing server to do the 'preview in browser' option.
I think you're aware of all of this, but just in case others read this post:
I can't tell from the screenshot, but the file should be accessed using http:// and not C:\ or
file://. The reason is that the templates work on a server side includes model, meaning a web server must process all of the
include directives within the content and combine the files before they are sent to the client.
The best way to proceed is to either set up a test directory on your live server, or set up an instance of Apache on your localhost. I prefer to have a local instance of Apache running on my machine, which mirrors how the production server is set up. This method helps because you can work at the same level as your production site, resulting in less URL linking issues.