Can someone explain where the 44" long black vacuum line for the 1968 w/AC vacuum hose kit hooks up in the engine. The instructions say, "Vacuum Source Headlight Vacuum Yellow Hose". Unfortunately I don't have any yellow hoses so I don't know where this hose goes.

The hose in question would be a normal, black hose, with a yellow stripe on it.
From the description, it sounds like this is the hose for the vacuum reservoir/tank, under the driver side fender, by the brake booster.master cyl. It would go from there, to the front of the car, where the relay valves are. I'm thinking the early cars only had one relay valve up there, tho, but I could be a bit foggy...

The vacuum lines comes from the console inside the car (which I understand) to some location in the engine (which I don't understand)

68's and early 69's had two headlight relays.  Late 69's had one.

Hmmmm...I can't think of any vac. lines that would go under the console on a '68. Did you mean behind the radio area of the dash?

I have an early 68. The vac line goes to the source input on the A/C control.

How large is this hose? Is it fairly small?
If it's a smaller sized hose, then it is most likely the one that fits onto the check valve under the hood. There is a larger hose that comes off of the rear of the intake, behind the carb, with a small round, plastic "filter", and then a small round, metal check valve with one nipple on the engine side, and two nipples on the other side. One of these hoses goes to the vac. reservoir, and the other goes to the inside of the cabin. Perhaps this is the one you're describing.
Just a guess at this point.

Mystery Solved.  The hose in question (small)  ties into the large yellow striped hose with a tee (large x large x small) right after it comes thru the firewall (three hole grommit behind the heater box).  This supplies vacuum to the actuators associated with the air conditioning.  Thanks for all your help.