A file is discrete computer item containing some sort of data. A folder stores files and other folders. Files take up a small amount of space on the hard drive, while files range in size dramatically.
Computer file systems store folders as simple files, and they can generally be moved to new locations the same way that files are moved. Folders help users find the files they're looking for quickly, and they make organizing information simple. Folders also allow operating systems to store multiple users' information in different locations. Permission management can restrict access to certain folders, allowing users to keep their information safe from unauthorized access.
Computer programs also use folders for organization. Programs often use various files for storing program information, and some use hardware drivers stored in files. By creating a directory, programs are able to know where to locate the files they need.
Because folders can contain other folders, they allow for sophisticated hierarchies. A music folder, for example, can contain folders for different genres of music, and these folders can contain different artists or bands. Each of these folders can then store folders for different albums.
Folders are sometimes called directories. On some legacy systems, folders were called directories, although this term has fallen out of use.