You might want to point to the core.jar – the Java library – not the .app, which is a special folder that contains all the parts of the PDE application, including that jar.
The
core.jarfile contains the core classes of Processing and has to be part of your classpath when building a Library. On Windows and Linux, this file is located in the Processing distribution folder inside a folder namedlib. On Mac OS X, right-click the Processing.app and use “Show Package Contents” to see the guts. Thecore.jarfile is inside Contents → Resources → Java. For further information about the classes incore.jar, you can see the source here and the developer documentation here.
You could also just follow the entire instruction list for creating a new library project from the template.