I happen to get a question from my customer asking me that he wanted to add a DESCRIPTION column to the FOLDER created inside a document library. So as when you create a document library you assign a description and other details (some kind of metadata), so how do you do the same for FOLDERS also. So the answer for that is basically FOLDER is a CONTENT TYPE. So suddenly you realize that you can add a column to the content type, yes that was my thought too but FOLDER is a SEALED content type.

Folders are derived from ‘item’ content type (Parent content type), but folders are configured as "Sealed" that means that all the settings, links and column options have been eliminated from the "modify content type" form;  so bottom line the content type is “locked down” and can’t be modified extensively by the user. (though there is a hack :), and that is modify the sealed Content Type definition file, but this will affect the entire web-application which we dont want to do and also Microsoft will not suppport on any issues arising from these). In case for testing if you do so you would notice that "Add a new column" and other links would appear on the modify content types form which will allow you to add new columns, etc. But a word of caution please don't do this on your PROD environment as this in no way is supported by MS.

So yes there are limitations on folders, but then there is always an alternative, you can create a custom type that inherits from FOLDER (content type as parent).  So now this FOLDER child content-type is not sealed and allows you to have full functionality such as work-flows, columns, etc. So if you find the FOLDER content-type limiting, you can create a custom content-type inheriting from FOLDER.

Hope this helps someone :).