Click on the ``eject'' button to open the playlist manager. At the left you'll see the content of the directory you were in the last time you edited your playlist. At the right you see your current playlist. Select a midi file on the left to append to the playlist by double clicking on it. Or single click, then click on Add.
The only files shown on the left are midi files. Compressed midi files will not be recognized, unfortunately, so if you've used, say, gzip to compress the files, you'll want to click off the Filter button at the bottom. Then all files become visible. KMidi does not decide whether a file is a midi file or not by looking at the name; instead, it reads a bit of the file to see whether it appears to be a midi file. So there's no need to name your midi files with a .mid suffix.
Toward the bottom of the screen are your current playlists. When you first start, there will be only one, called ``default'' with the sample midis from the KMidi distribution. You change the contents of this by clicking once on the name ``default'' (if it is not already selected) then clicking File->Save to replace the contents of the playlist file with your current playlist. Or click File->Append to concatenate your current playlist onto the end of a playlist file. To create a new playlist, click File->Save as ... instead and fill in the new name you've chosen into the little box that appears. Double click on the name of a playlist to replace your current playlist with the contents of the one you've saved. This can also be done from the front panel by single clicking on the name of a playlist in the ``Select Playlist'' box.
Remove a playlist by clicking on its name, then clicking File->Remove.
The vertical bar separating the directory list from the playlist can be dragged from left to right with the mouse. The horizontal bar separating these from the playlist names can be dragged up and down.