A Test folder helps you to group test plans. Various test plans are often very different from each other in terms of functionality (e.g. "Test plans for setup", "Test plans for UI tests"). By using test folders, you can group related test plans together.
Test folders can be nested as and where needed and contain an infinite number of test plans. Test folders are, if you will, similar to folders inside Windows Explorer which group files (for Zeta Test: test plans) together.
A test folder has a single cumulated test result (traffic light colors) that is calculated from its child elements (test plans and test folders). This gives you a very quick overview of the overall status of a single test folder.