The only purpose of the file handler is to send files. No more, no less.
The file handler accepts one parameter:
Let imagine your DocumentRoot points to /var/www.
Directory /images { Handler file }
This configuration will make Cherokee to serve files inside /var/www/images like files.
You could also define another DocumentRoot for a certain directory entry.
The next configuration example is very common in Mailman (http://www.list.org) installations:
Directory /images/mailman { Handler file DocumentRoot /usr/share/images/mailman/ }
On http://www.example.com/images/mailman/mailman.jpg request it will send: /usr/share/images/mailman/mailman.jpg
It is a good idea to disable to I/O cache if the content of the directory changes often:
Directory /webcam { Handler file { IOCache off } }