Image styles not working, uploads to to files directory
It's because you do not have the correct folder owner/group.

You need to cd into your /sites folder. Once there:

If you're using Ubuntu do:

sudo chown www-data:www-data -R default

For CentOS it's:

sudo chown apache:apache -R default and disable SELinux



PS: Never give your files folders permission of 777, set it to 775