Ha! I had the same exact question.
Installing the LN Engineering Oil Filter Adapter - where does the 2nd o-ring go?
The big o-ring goes right where you would expect, in the same place it would go if you were using the factory oil canister.
The small one goes on the other side, just inside the center hole that slips over the tube in the car that the paper filter goes on.
In my case, that o-ring was already installed, and it was black, and the metal was black, and I couldn't see it, I thought it was just a lip on the metal. Only when I ran my finger on it could I feel that it was o-ring material
I installed it my last oil change a few weeks ago, was simple to do.
Good luck!
Steve