It will ask you to browse to the Server 2008 R2 Installation Folder. If you download a free SQL Server 2008 Express, it is probably in your Download folder. This file has .exe extension which is bacically a zip archive. What you need to do is unzip it in the current folder. Right click on the SQLEXPRADV_x86_ENU.exe file and select extract here or you can use 7-zip (free) to unzip the .exe file. It will extract all the files in current folder. Note no directory will be created, unless you specify one.
You will see this dialog after you click the highlighted link in step 2.
Now browse to the folder where you just unzipped the .exe contents and click OK. If the directory is correct, it will accept it and will load the installation otherwise you will get an error.