E-liam, I've never used Coffee Cup before, having only ever used Visual editors, such as Macromedia DreamWeaver (I believe they have a lower cost version called contribute if you want to get into something a little more powerful, yet easy to use), or built websites via the raw source code.
So I can only guess at what the problem might be with Coffee Cup.
What I do know, is that these visual editors, generally need a bunch of information about the site your trying to create, such as the local and remote paths to all the files. (IE: C:\mywebsite\home might be the local path information that you need to put in the editor and
http://www.mywebsite.com/ for the remote) This is how they find all of the daughter files as you say.
If this doesn't solve it, maybe it only recognizes .html files, and not htm.
One last thing, try and stay away from using Word to edit the HTML, as Word ends up adding so much useless and unneeded markup, that when you do want to migrate to another visual editor, it may corrupt your files.
Good luck.
Ridley