I am using Redhat 5 and need to build RPM files and create a YUM repository. Can I create a directory on my server where the RPM files will be located? I need simple examples. Does the server I use need to be a linux server?

you first need to install the old rpmbuild for the older rhel5
( the current is RHEL 6.4 )

but to do that in the current older RHEL5.9
you must have a regestered system with red hat and have a valid paid for support contract

if you did not buy the required support contract for the older rhel5.9 , then you basically do not install anything

If you did buy the required license then do a search of the red hat knowledge base

The full instructions for setting up a local "satellite" repo are there

https://access.redhat.com/search/quick

( you will need to loggin to the red hat site to read the results - using the credentials you set up with the license )

Did you try google?