Holy cow, I wrote a book!
Windows 95 introduced Windows Explorer and along with it the term
What is the relationship between folders and directories?
Some people believe that
Windows 95 renamed directories to folders,
but it's actually more than that.
Windows Explorer lets you view folders,
which are containers in the shell namespace.
Directories are one type of folder,
namely, folders which correspond to file system locations.
There are other types of folders,
such as Control Panel or Network Neighborhood
These other types of folders represent objects in the shell namespace
which do not correspond to files.
In common usage, the term virtual folder has been applied to
refer to folders which are not directories.
In other words, we have this Euler diagram:
In general, code which manipulates the shell namespace should
operate on folders and items, not directories and files,
so as not to tie themselves to a particular storage medium.
For example, code which limits itself to files won't be able to
navigate into a Zip file, since the contents of a Zip file are
exposed in the form of a virtual folder.
Update: The Web server "helpfully" closed some tags prematurely.
Apparently it doesn't want you to nest tables.
Replaced nested table with DIV.