How to recursively go through all subdirectories and read files?

You need to use absolute paths, your file variable is just a local filename without a directory path. The root variable is that path:

with open('output.txt','w') as fout:
    for root, subFolders, files in os.walk(rootdir):
        if 'data.txt' in files:
            with open(os.path.join(root, 'data.txt'), 'r') as fin:
                for lines in fin:
                    dosomething()