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A typical system contains many files, perhaps tens of thousands. To keep track of them, they are divided into directories. A directory is an area of the filesystem that is assigned a name; it can contain files and, optionally, directories. By using the name of a directory instead of the name of a file as the parameter of a command, you can make the command operate on all the files stored in that directory simultaneously. The first, top level, directory on the system is called the root directory; all the other directories and files in the system trace their ancestry back to it.
Files belonging to a particular user are usually stored in that user's own directory; those associated with a single project or application are also often stored in a single directory. Users can also create directories within their home directory to store files relating to specific projects. The operating system looks after the organization of system files, but you are responsible for the organization of your own files.