Folders and collections serve different purposes in Lightroom.

Folders represent the photo’s actual physical location on disk. A photo can only be in one folder because it only exists in one place in your storage structure at a time. This matters for organizing files across local drives, external drives, network storage, or a NAS, and for keeping a predictable import structure such as year/month folders.

Collections and smart collections are virtual groupings inside Lightroom. They do not move files on disk, and a photo can appear in many collections at once.

So the main thing folders do that collections cannot is manage and reflect real file storage. They’re useful for import-time organization and for splitting a library into practical chunks on disk. Collections are generally the better tool for day-to-day browsing, projects, and thematic organization.

If all your images live on one machine and you mostly work inside Lightroom, you may not use folders much beyond setting up a simple storage structure.