Thanks, Raghuraman! The link was very helpful. I would not be using the folders anymore.
The only reason I wanted to understand is because when we used the migration tool for migrating objects from 7.31 to 7.4, 7.4 seems to create folders automatically, with the same name as the Configuration Scenario.
The 'issue' I'm getting is with the Configuration Scenario/Generated Folder name highlighted below for the 'POC' folder I created in NWDS. When I try to manually export/import objects (through Swing client) by Folder name, the names are not very helpful. (CTS+ is currently not yet setup). I guess this is not really an issue but this is how it's assigned a name. The actual folder name is not being referenced when the CS is opened.