There are two 'Live Sass Compiler'. Old one with more than 2 millions downloads, but last time updated in 2018. And new one with 80 thousands downloads, but it supports all new features. Try to use newest, it might help.

You need to check sass live compiler config file (settings) where you can describe what file types you want to compile and also choose the path you need to your css file. Compiler creates css file automatically.

Open extension settings and you will see That's my config

 "liveSassCompile.settings.formats": [
{
  "format": "expanded",
  "extensionName": ".css",
  "savePath": "/css"
}

],

If you have done this correctly - I think the problem is syntax inside your sass file