This feature was added after both interface and manual were complete and is not very refined. First, you have to create a directory called PICS within your main Daggerfall directory. Now, if you press the assigned key, a bitmap screenshot will be created in this directory, named SCR0.BMP, SCR1.BMP and so on. It is advisable to create no more than ten screenshots, for afterwards the game might start overwriting the previous ones. In any case it will do this after restarting, so rename or move your snapshots after each game session.
On American keyboards, the assigned key is the backslash. On other keyboards, it is the key nested between Enter and Right Shift. You cannot assign this function to any other key.