It's actually a signal to Explorer to look harder. It doesn't mean that the directory is read-only.

If a folder has the Readonly or System flag set, then Explorer will look for a desktop.ini file which describes the folder customizations. For performance reasons, Explorer does this only if the directory has the +R or +S flag. (This is enormously important on slow networks.)

There are two KB articles on this subject, and I will defer to them for much of the discussion. This is the version that applies to Windows XP and Windows Server 2003. There is also a version that applies to older versions of Windows, although the UseSystemForSystemFolders policy still applies.

Coders shold use the function PathMakeSystemFolder to mark a folder as requiring special attention from Explorer.