What is the use of "Virtual Folders" in the Navigator or Package Explorer of Eclipse / Flash Builder?

These folders can be created similarly to normal folders by right-clicking > New Folder... and then toggling the "Advanced >>" button to show the virtual folder option.

Since the folder isn't located in the file system, just curious as to how exactly are the files stored when I drag them to this virtua开发者_开发百科l folder, and what's the difference / purpose from a normal folder?

You're right, they have to exist on the file system somewhere :-)

AFAIK linked resources are created for the files under a virtual folder. That means they point to an absolute path on the filesystem, outside of the workspace. If you move the file in the filesystem, it gets broken.

See Virtual folder for a starting point.