The folder that a file is currently saved in if another folder name is not specified. Depending on the application, the last folder used to save a file might become the default folder for the next time.
Default folders for documents, music, photos, etc. are created by the operating system upon installation. Applications generally save their files to the default folders, and countless users never have any idea where anything is stored.
In an emergency requiring users to save their data to some external device, the default folders are a good place to start looking. See folder