Thanks for getting in touch! There are a couple of things in play here. And I am going to make an assumption about what outcome you are after, so please correct me if I am wrong.
The app setting that you set on the tentacle, just tells Octopus the base directory you would like packages first extracted to. And based on your feedback, this has happened your package has ended up under c:\websites\site when the package is extracted instead of c:\Octopus.
If you are trying to install your website to a final specific location you need to use the Custom Install Directory feature of the package step.
This article in our docs explains about the CID and why we first extract the package to a different location and then move to a final location.