The Preferences folder exists to store an application's settings. Preferences files, often shortened to "Prefs files", are often stored inside the folder.
Classic Mac OS
All preferences are often stored in a unified, centralized Preferences folder in the System Folder. Additional folders may be created inside the folder itself.
Mac OS X
With Mac OS X, the situation got a whole lot more complicated. Generally, system-wide settings that apply for more than the current, logged-in folder are stored inside the Preferences folder inside the Library folder on the root level of the Mac OS X startup volume. Settings for applications on a user-per-user level are stored inside the Preferences folder located inside the Library folder in the user's Home folder.
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