There is really nothing complicated about how the models are setup. To simplify the process we decide reorganized the system in the following manner.
1. A Model resides in a specific folder according to what it is. In this example models/props/furniture/armoire. See Model Folder Structure for a list of which models go in which folders.
2. All Textures are stored in models/darkmod/props/textures
3. Material files should look like this.
Each model should have this path. I'm not sure if all modeling software handles the texture paths the same, but this is how it looks in lightwave.
Take note that the _d is not needed at the end of the path. I saw a few models in my journey that came through like that. It causes the model to look fullbright all the time.