In computer terms, a file organization system, similar to a telephone directory in concept — a listing of names, addresses, and phone numbers. A directory groups related files/data so that they can be located and used in an efficient manner. A computer directory generally takes a tree structure, where files are organized into various branches or hierarchies, beginning from the drive or storage device on which the file resides, and branching from there to various folders and nested folders.

Though the terms are used interchangeably, you could argue that there is a difference between a folder and a directory. A folder is a virtual container for holding files or sub-folders (which may in turn hold files or more sub-folders, and so on). A directory is a listing of where files are located.