Premiere Elements and Premiere Pro are "non-destructive" editors... your project file contains commands about your editing, but your original file stays original... when you finish editing and export to a new file (publish/share for Elements) the commands in your project file are implemented during the creation of the new file
The Elements Tutorial Links Page http://forums.adobe.com/thread/1275830 may also help
What version of Premiere Elements are you using and on what computer operating system is it running?
In any version of Premiere Elements, when you import source media (originals) into a project, all you get are copies on the originals which are saved to the computer hard drive (in your case this Drive Z). But, those copies in the project must always trace back to the originals at their save location where they were when you imported the them into the project.
During all this, your originals are safe. No worry about you damaging them by what you do to them in the project. But, there is the potential for damaging the project if you move, delete, or rename the originals once the project is saved closed. If you do that, when you go to reopen the project, you will be greeted by missing media messages that have to be resolved with project and media reconnections. It can be a difficult situation. Another chance for your project to be disconnected from its source media is if your Drive Z which you are using to store the project's source files malfunctions in any way, perhaps changing drive letter to other than Z.
Please read about the Premiere Elements Project Archiver and its Archive Project and Copy Project options.
If any questions on any of this or need clarification, please do not hesitate to ask.