The question gets asked alot in here. Do a quick forum search and you'll find lots of people in the same shoes as you.
If you have folder such as \source that all your classes and packages are in, you typically put the hibernate-config.xml file in there. But remember, at runtime, it needs to be moved to your runtime classpath. Build tools usually compile and move Java code to a \build or \bin or \classes directory. Sometimes the config file doesn't get moved as well. So, make sure that config file is on the RUNTIME classpath, not just your build time classpath.
Here's a little tutorial I put together on setting up a Hibernate environment: