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I have never installed a testing server on anything other than my Local Hard Drive. And I keep my local site folder inside my local testing server's default web directory -- on xampp that is the htdocs folder.
I do know that xampp lite will run from a USB / removable Flash drive. Maybe that would work for you?
Thanks for the reply. It would be best if it could be on its own dedicated machine so that me and another person could access them easily without having to pass a flash drive around or having to look at each others screens. We could just pass the files around on the remote FTP but that would still be a bit of a hassle.
Using a flash drive to develop with other contributors on a LAN is an unacceptable "solution". Dreamweaver should be (and is) able to setup a local testing server on a local network so that you can work on files with other contributors within your LAN. See https://helpx.adobe.com/dreamweaver/using/set-local-version-site.html
The local folder can be on your local computer or on a network server.
Multiple developers working on the same site in a local network is the main purpose of Dreamweaver's check-in check-out feature.
Thank you Shocker for your reply! For the server folder would I specify where it is on the server such as C:\xampp\htdocs? I've tried that and a couple of other options and I always get the "Dynamically-related files could not be resolved because the site definition is not correct for this server" error.