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Where should my files be located for inserting them into LaTeX document. Please help me.

\begin{figure}
  \centering
  \includegraphics[scale=.87]{Plot_Left_Right.eps}  
  \caption{Banknote Left vs Right}
\end{figure}
2

In your given snippet the image has to be in the same directory of your tex file.

In my opinion it is better to use a directory images for example. Then you have to include the relative path images/ in the call of \includegraphics:

\includegraphics[scale=.87]{images/Plot_Left_Right.eps}

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