How much free space do you have on your system drive?
Photoshop moves large amounts of data and it needs to store temporary working data on disk as you work. This is the scratch disk. It's real, physical disk space, and if it runs out, Photoshop can't open.
The preference setting is for choosing a different physical disk. If you don't have that, it doesn't help. Then you need to clear out space on your system drive.