Folders define where song data will be stored. There are two types of folders available:
Songs are stored as files in a folder. You can also places images, PowerPoint files and other supported types in these folders. This is useful for a network configuration where several computers share songs.
Songs are stored in an Access or SQL database. This is useful for quickly accessing a large amount of songs.
The downsides to this are:
SQL server is recommended for networking songs as opposed to Access (which is free).
You cannot store images, PowerPoint files and other supported types in a database.