Converting Video TS files to a blank DVD

Isn't documents ok?
It should if you have space on your startup hard drive. Mine is usually about 85% filled so I normally use my larger, number two internal drive for video conversions and imaging.

Where do I have to set for the destination?
If you set the "Prompt for new destination" option in the startup screen, then it will ask you for a different destination.
Was just going over the instructions page and was wondering if you were entering your own name for the DVD. If so, are you using all capital letters and the underscore mark for spaces. In know these are all that DVDs/DVD Players can handle but don't know if the application will consider this an error if you enter anything else.
Also, are you getting a progress bar at all? I am asking because you only mentioned seeing the "Working..." message. If it is working you should also see a progress bar above the message.
As I'm do sure whre you got your download, here is the URL for the instructions page in case you missed it: DVD Imager
Oh yes, one more thing... The Disk Copy mode is for the inclusion of the AUDIO_TS folder and other folders and files at the "root" level of a DVD. (E.g., "extras" included on a DVD.)

How can I burn this onto a DVD?
You can use the "Disk Utility" application in your "Applications > Utility" folder. Open the application. If the "MY_DVD.img" file is already listed at the bottom of your "drives" list (left-hand side of the window), then simply select it and press the "Burn" icon button at the top of your screen. If not already showing in the list, then press the "Burn" icon button and navigate to/select the "MY_DVD.img" file. Then just follow the instructions for inserting, burning, etc.

In any case, glad you were able to figure out what the problem was. Good Luck and Happy DVD making!