A playlist is a file that holds information about a group of items.
A playlist folder is a folder that can hold playlists.
It's as if playlists are documents, and playlist folders are folders, or what we old timers called subdirectories, where you can store a group of related documents.
If you sync a playlist that currently resides in a playlist folder to your iPod, you will find the playlist in the same playlist folder on your device's playlist tab of the music player.
When you are in the Music tab of the device screen in iTunes, you can navigate to a tree view of your playlists and folders. From there, you can check a playlist folder to have all of its playlists sync'ed to the device. If you don't check the folder, but do check one of its playlists, scrolling the tree view will report the playlist folder as checked, even though not all of its contents are checked.
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Think Files and Folders