Well I thought line A made the most sense too so that's where I stitched the line. Turns out that wasn't correct but I only found that out in the last few steps when I was constructing the bottom. Apparently the "bottom fold line" is not marked at all. It's where the bottom of the pattern piece zags in, along that narrowest part (there's a fold in the pattern paper there in the picture). I was able to rip out the incorrect stitching, but not stitch a correct line in. It's not essential, but I assume it's recommended since the pattern calls for it.
I hit another wall at the end this evening too. I just could not for the life of me understand what the directions were telling me to do. I sat for about a half hour messing with the bag, trying everything I could think of. I finally figured it out through trial and error. Could have done the same thing without the pitiful directions. :(
BUT, now that I've made one, I know what to do for future bags with this pattern. :P