For Paypal Integration, please go to Extensions -> PayPal. First of all, you must enable and set up the PayPal module. Instructions on how to set it up are found on this page.
After enabling and setting up the module, in order to proceed with a payout via PayPal, the current Affiliate user must also have his PayPal details completed.
Your PayPal account must be able to manage Payout services. This option is not available for everyone, or all countries.