The working folder is where you actually work on a file. When you Check Out or Get a file, VSS copies the item into your working folder for that project. After you make changes to the file and check it in, VSS copies it from your working folder back into the database.
From then on, VSS manages your working folder by creating folders as needed on your computer when you check files out.
A working folder can be set or changed at any time. See Set Working Folders for more information. Files can also be viewed without a working folder. See Get and View Files and Projects for additional information.