Place both the CustomDCCloneAllowList.xml and DCCloneConfig.xml files in the directory where the Active Directory database (ntds.dit) is located, which is typically C:\Windows\NTDS on the source domain controller. Alternatively, both files can be placed on the root of a removable media drive.
File locations
CustomDCCloneAllowList.xml
Primary location: The C:\Windows\NTDS folder on the source domain controller, as it is the same location as the ntds.dit file.
Alternative location: The root of a removable read/write media drive (e.g., a USB drive).
DCCloneConfig.xml
Primary location: The C:\Windows\NTDS folder on the source domain controller, as this is the default location where the New-ADDCCloneConfigFile cmdlet places the file when run on the source DC.
Alternative location: The root of a removable read/write media drive.
Reference:
https://learn.microsoft.com/en-us/windows-server/identity/ad-ds/get-started/virtual-dc/virtualized- domain-controller-deployment-and-configuration