What is the difference between a file and a folder

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A folder is a level within the file system "tree". Inside each folder can be a collection of files and more folders. There is usually a limit on how many files & folders you can have at each level, which will depend on the type of formatting that has been used on the disk (See File System Limits).

Directory is another word for folder, and a folder within a folder can also be called a sub-directory.