I've uploaded my text/html files to my control panel (ios, v.2 self-hosted)and see that they are in the Documents folder. After I download the Source Code, do I need to drag the same .html files into the BT_Docs folder before I drag the folder into my xcode file? The same with .css file? thanks.

Yes

Can you be more clear on telling what files exactly you have created, custom text/html or html docs and which screens are you using (custom url screen, html doc screen custom text screen)? In case of custom text/html you do not have to drag those files in your project as they are already hosted on the buzztouch server. In case if you have created html docs and if you want to put those files locally then you have to put those docs in the BT_docs folder and if you want those file to be online, you can put those files on your server or dropbox and redirect them using custom url or html doc screen feature in the app.

It might be slightly more complicated. I haven't loaded the html into the BT_Docs folder in the Xcode file, however the html doc screens are showing up in the simulator. I'm using an RSS feed withing the html. The RSS was altered with yahoo Pipes to replaces the link to a website with a link to my BT html screen. Could this be why it's showing up in the simulator, and would I still need to load the html files into xcode. Do you know if it will still cache?

IN short you are using the html doc screen. There is an option to cache the html pages on device. Go to the html doc screenpage on bt---> click Document Behaviour---> click Force Refresh option---> select No, allow caching.