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I have an SQL Server 2012 instance running as a service on my computer, and according to the service page it logs on as account "NT ServiceMSSQLSERVER". However I can't see that account name anywhere else including in the "Local Users and Groups" area in the computer management screen, because, as a link below says, that's not a User Account, it's a service name, in that box that Microsoft so helpfully labelled "account". At this point I can see many people being confused.

The task I'm trying to accomplish is to restore files using the SSMS dialog "Locate Backup File", which uses a dialog completely unlike any of the standard windows file open dialogs, probably because it's doing a "remote" job and operating from the security context of the SQL server, another rich source of end user confusion, that I hope this question might help clear up.

So far if I want to restore a backup .mdf/.bak file that I have in one of my folders, I have to set that folder to readable by Everyone or else I can't get in there with the SQL Server "Locate Backup File" window. I find this idea that you're using a GUI talking to a service that has different user accounts and rights than you, that nobody at Microsoft even cared to make clear to you, very confusing even when I have years of experience with windows system administration.

I'm hoping I missed some documentation pages for SQL Server that would tell you, after installing a new SQL server instance, how you might set up security.

Forum posts like this one have even Microsoft staffers saying "this is complicated", and that it "changed, again" in Denali. How does this work now in SQL Server 2012, and how might I add permission to read files belonging to Users to the SQL Database engine's security SID.

For reference "Denali" is SQL Server 2012. With regards to "end user confusion", I am not all that concerned with whether a end user is confused or not with regards to SSMS. Microsoft did not develop this tool for the normal end user, but for the database administrator and/or a user that had to manage a database. Therefore there will be a learning curve with the tools provided and how they function. The file dialog box has been that way in SSMS since SSMS came out with SQL Server 2005. This is why you will general see most stick with T-SQL statements for backing up, restoring, or attaching a database that have been using it since then.

To configure file system permissions with SQL Server you can follow the instructions from MSDN here.

The way service accounts are handled did not come with or because of SQL Server, it was due to the change on the operating system level. Window Server 2008 R2 put a bit more of a security layer around service accounts. The advantage you have is that the service account can more easily access resources on a domain even if installed with the default settings. This link provides a pretty detailed look at how service account permissions are handled with SQL Server 2012. Excerpt from the link is below on the Virtual Accounts used by default in SQL Server 2012. There is also a link provided in the article that goes into more discussion on the Service Account concept with Windows, here. It is from Window Server 2008 R2 but I believe still holds true on Window Server 2012, and likely Window Server 2012 R2.

Virtual Accounts

Virtual accounts in Windows Server 2008 R2 and Windows 7 are managed
local accounts that provide the following features to simplify service
administration. The virtual account is auto-managed, and the virtual
account can access the network in a domain environment. If the default
value is used for the service accounts during SQL Server setup on
Windows Server 2008 R2 or Windows 7, a virtual account using the
instance name as the service name is used, in the format NT
SERVICE. Services that run as virtual accounts access
network resources by using the credentials of the computer account in
the format $. When specifying a virtual
account to start SQL Server, leave the password blank. If the virtual
account fails to register the Service Principal Name (SPN), register
the SPN manually. For more information on registering a SPN manually,
see Register a Service Principal Name for Kerberos Connections.
Note Note
Virtual accounts cannot be used for SQL Server Failover Cluster Instance, because the virtual account would not have the same SID on each node of the cluster.

The following table lists examples of virtual account names.

Default instance of the Database Engine service: NT SERVICEMSSQLSERVER
Named instance of a Database Engine service named PAYROLL: NT SERVICEMSSQL$PAYROLL
SQL Server Agent service on the default instance of SQL Server: NT SERVICESQLSERVERAGENT
SQL Server Agent service on an instance of SQL Server named PAYROLL: NT SERVICESQLAGENT$PAYROLL

To see/access the files in another folder, give NT SERVICEMSSQLSERVER permissions on the folder. See my answer posted on .bak file not visible in any directory in SSMS for screen shots and the steps involved. (Slightly different from adding normal user/group permissions to a folder.)

Hope that helps!

In fact, if you try to do a restore via SSMS, and you are logged in via Windows Authentication (!), it will be YOUR Windows account (and not "everyone either) that needs the permissions to that - NOT the SQL Server Service Account.
Hope that clears the confusion.
The service account has other needs.
For example if you were logged in via a SQL Authenticated Account - then which permissions should the operating system ask for? - It will be the Service Account of SQL Server in this case only!
This has not changed since SQL Server 7.0 and probably not even before that :)

I just laugh at the insane rocket science. Microsoft technologies are becoming so complicated they're almost useless. 'No wonder so many other tech stacks have become popular.