(This guide is not about what you can do with & how to use the KotOR Tool)

Fred Tetra's KotOR Tool (and possibly the savegame editors) assume you installed the game the old way. This means it expects an entry in the Windows registry that contains the location of the game. The Steam version of the game doesn't add anything to the registry, but we can manually fix that.

First you need to locate the location of the game with the Windows File Explorer, this may differ for you and me depending on what you picked during the installation of Steam.
It's likely something like [your drive]:\[your folder]\steamapps\common\Knights of the Old Republic II
You can search the whole computer for "Knights of the Old Republic II" if you have trouble finding it.

Now click once in the "path bar" to get an actual path (see image below), copy the text and paste it in Notepad (or any other plain text editor) for now.

In Notepad turn the one backslash to 2 backslashes: [your drive]:\\[your folder]\\steamapps\\common\\Knights of the Old Republic II

We now have a path that is valid for the registry which we can use later.

We'll now make a file that adds an entry to the registry. Open another Notepad, to make a new text file. Paste the text below in it, adjust the path with your actual path, make sure you leave the quotes around it. Save it as KotOR2.reg, double click that file in the Windows Explorer and press Yes at the warning. Log out and back on or restart your computer for the changes to apply. Start KotOR Tool and check if the game gets recognized.

Windows Registry Editor Version 5.00

[HKEY_LOCAL_MACHINE\SOFTWARE\LucasArts]

[HKEY_LOCAL_MACHINE\SOFTWARE\LucasArts\KotOR2]
"Path"="[your drive]:\\[your folder]\\steamapps\\common\\Knights of the Old Republic II"

We'll now make a file that adds an entry to the registry. Open another Notepad, to make a new text file. Paste the text below in it, adjust the path with your actual path, make sure you leave the quotes around it. Save it as KotOR2.reg, double click that file in the Windows Explorer and press Yes at the warning. Log out and back on or restart your computer for the changes to apply. Start KotOR Tool and check if the game gets recognized.

Windows Registry Editor Version 5.00

[HKEY_LOCAL_MACHINE\SOFTWARE\WOW6432Node\LucasArts]

[HKEY_LOCAL_MACHINE\SOFTWARE\WOW6432Node\LucasArts\KotOR2]
"Path"="[your drive]:\\[your folder]\\steamapps\\common\\Knights of the Old Republic II"

- Thanks to the people at deadlystream & the discussion there: http://deadlystream.com/forum/topic/2455-kotor-tool-kotor-2-on-steam/
- Obviously massive thanks to Fred Tetra for making this modding tool