File I/O, SHA1 sum and compression
Problems :


methods mkdirs() and createNewFile() return booleans to indicate whether they are successful. You should check and handle if they return false.
IOException gets ignored, you print the stacktrace but clients have no way of knowing the method failed.


Style :


This is one procedural block in which different concerns ( finding and creating files, directories, computing hash, converting byte[] to a String, ... ) are handled. Despite an attempt to limit the of variables scope with a block statement, variable scope is unclear and often wider than strictly needed. There is but one cure : refactor : extract method.
variable naming does not follow Java conventions.
Don't return a dummy return value, declare the method to have void as return value, and you don't need to return a value.
Comments : step 1, step 3 what happened to step 2?
printStackTrace() statement ends with ;; only one is needed. (probably a typo)
loop over the byte array can be a foreach loop :


like this : 

for (byte aResult : computeSha1Hash(input)) {
    builder.append(Integer.toString((aResult &amp; 0xff) + 0x100, 16).substring(1));
}



coupling should be reduced. The hashing algorithm (sha1), output mechanism (files) and byte[] to String encoding are all hardwired.
use of magic numbers; replace with explaining constants.