At first glance, Libraries may seem like Microsoft just arbitrarily decided to rename Folders in Windows 7. Once you understand Libraries though you will see how much more powerful they are than Folders and how they will make your life easier.
A Folder is a container. It holds files. A Library is a view. The Library itself doesn’t hold anything (well- it *can* but that is not the intended purpose). Viewing a Library provides an aggregated view of all related data no matter where it is on the computer, or even if its data from other systems.
Watch this screencast for a quick overview of Windows 7 Libraries: Organizing With Windows 7 Libraries
If you still have some questions or concerns after watching the screencast, then check out Windows 7 Libraries: Frequently Asked Questions.