.htaccess should be read by any directory UNDER the one that the file is located in...
IE:
I have .htaccess in /var/www/html (or
www.gizzy.com/); any directories under /var/www/html (or
www.gizzy.com/) read the rules of the .htaccess file.
Myself, I just manage my own .htaccess as:
# Turn Rewrite Engine On #
RewriteEngine on
# Start Allowed Hosts #
RewriteCond %{HTTP_REFERER} !^$
RewriteCond %{HTTP_REFERER} !virtualnightclub.net [NC]
RewriteCond %{HTTP_REFERER} !69.9.166.202 [NC]
RewriteCond %{HTTP_REFERER} !ubbdev.com [NC]
RewriteCond %{HTTP_REFERER} !ubbcentral.com [NC]
RewriteCond %{HTTP_REFERER} !infopop.com [NC]
RewriteCond %{HTTP_REFERER} !ubbdev.com [NC]
# End Allowed Hosts #
# Start defined files & redirect location #
RewriteRule .*.(jpg|jpeg|bmp|gif|png|psd)$ http://errors.virtualnightclub.net/dnl.gif [R,NC]
# End defined files & redirect location #
replace the error image with any you want, if you don't want one then just replace it with a "-".