Do I need to configure an upfiles/ directory?

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You could:

1. Create a directory in the filesystem for storing the uploaded images. IMHO, this directory should not be inside the askbot/ tree, but in a separate path, as it may grow in the future. However, the default askbot/upfiles should be OK for small sites (no risk of huge disk occupation because of the avatar files).
2. Configure your web server (Nginx / Apache) to serve statically the contents (avatars). Beware to carefully configure the AVATAR images path and web server urls.
3. Review the security considerations. I have observed that askbot will store the "raw" image uploaded by the user (eventually a high resolution image), then creating several "thumbnails" of the original with lower pixel count. You should not make available publicly the high resolution (original) image. Maybe I am being picky here, but I think the application should only expose publicly the scaled-down images.

askbot/upfiles directory is used to save uploaded images, so it needs to be writable by the server process.

An alternative directory path can be specified with the settings.py parameter MEDIA_ROOT.

That nginx doc needs an update, what you would want - is serve files from that directory by the webserver, bypassing python.