"Drag...onto a toolbar" --- meaning you can choose the toolbar you want to 'dock' this tool onto. It's sort of like 'drag and drop' behavior, but if you more carefully maneuver (while dragging) over where you'd like to place it, I believe you will see a large 'I' bar, meaning when you 'drop', that's where the tool's button will be inserted.
Don't worry if you don't quite get it where you want on the very 1st try - with the 'customize' window still open you should be able to grab it again and drag it to whatever location on the bar you prefer. I think if you happen to 'miss' the toolbar nothing 'happens'...so try again. All this is intended to do is place one of the standard commands that ships with ArcGIS on your user interface that isn't usually there (not there by default). If you haven't already done so, make sure you open the ArcCatalog app, and follow the procedures.
Wayne
EDIT:
It's a tool for creating a valid connection ---- so let me pose the question to you:
Why would you expect any attempted connection to work if you have not provided any connection parameters?.....skipping from Step 2d to Step 8, what is that??
One more noteworthy thing to make sure you have as stated in Step 1, either have to be doing this on a machine that has Office 2007 or install the necessary connectivity components from Microsoft:
'...Microsoft Office 2007, download AccessDatabaseEngine.exe from 2007 Office System Driver: Data Connectivity Components.'