Hi @adrian_neill,
The configuration is case sensitive. The path to the static content is "web_root" (in your file it is capitalized). I tested your config with this small change and it served the static content from the specified folder.
You can find more details about configuration in the default web content when FreeMASTER Lite is started without any input arguments, or it can be accessed offline by opening C:\NXP\FreeMASTER 3.1\FreeMASTER Lite\html\index.html in a web browser:

It covers both command line arguments:

and file configuration:

Regarding .fmcfg files, I'm not that security team would whitelist - I usually add .txt .or .json extension to the default one (sorry for the inconvenience) . Actually, FreeMASTER Lite does not care about file extension as long as it has a valid JSON structure - the extension is used (on Windows) to register project files with custom node.exe so it can launch automatically the executable when you double click the file.