For a new project select the home directory of the jdk
eg C:\Java\jdk1.7.0_99
or C:\Program Files\Java\jdk1.7.0_99
For an existing project.
1) You need to have a jdk installed on the system.
for instance in
C:\Java\jdk1.7.0_99
2) go to project structure under File menu ctrl+alt+shift+S
3) SDKs is located under Platform Settings. Select it.
4) click the green + up the top of the window.
5) select JDK (I have to use keyboard to select it do not know why).
select the home directory for your jdk installation.
should be good to go.