The settings for ‘Folders’ serve to resolve relative paths for the access to files. The software saves relative paths in projects, and also the 3D formats supported by the 3D converter sometimes have relative paths to textures, i.e. the textures are not a part of the object, but are loaded from directories when the object is loaded. If you use this format, and you wish to convert the 3D object with the converter, then the base path for the textures must be added in the ‘folders’ dialog, otherwise the files will not be found.
Another example is when you receive a project that was created on another system, with objects and textures that are not available locally on your system. In this case, a network path to the directory structure of the other system could be added, so that when the project is loaded the missing files would be searched for over this path.