Folders versus albums
When you install Picasa, you have the option to allow it to scan your computer for folders containing photos and images. Picasa may even find photos you've forgotten about! Your photos and images will then be organized into these folders and any albums you create.
Folders in Picasa represent actual folders on your computer, so changes you make to folders in Picasa also affect the folders on your computer. For example, deleting a photo from a folder in Picasa deletes the photo from your computer. At the same time, deleting a photo from a folder on your computer removes the photo from Picasa.
Albums are different from folders because albums only exist in Picasa. They don't represent real folders on your computer. Albums may also contain photos saved across multiple folders. For example, you might create an album called 'Pictures with Grandma,' and include photos of grandma saved in different folders. It's important to note when you delete or move photos from an album, the original files remain in their original locations on your computer.
Note for Mac users: To ensure that Picasa and iPhoto play nicely together, Picasa scans and displays photos in your iPhoto Library as read-only files. If you'd like to edit or move these photos, Picasa will ask your permission to create a new editable copy. Learn more about how Picasa handles your iPhoto Library.