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Where are files saved? It does not seem to save the images anywhere.

there is an option to open the screenshots folder on exiting, it's in appdata/local/iceland

It does not open the folder.

that would only happen if you haven't taken any photos, have you found the in-game camera yet?

Yes I have. Reflecting on this, I think this is a consequence of Itch's method of storing data: On Windows, all data from the itch.io app is stored under a seperate user.

that's pretty weird if the folder isn't in C:\Users\(username)\AppData\Local\Iceland\Saved\Screenshots\WindowsNoEditor, then it's definitley itch.io that's handling the files differently somehow

Itch creates its own user folder, and operates from there.