The System Folders panel of the Library displays all your system-level folders and generates its own image cache, so you will see the contents of the folder in the Capture One Browser without importing them.
Images from cameras or external media are imported into the Session folders. The four default Session sub-folders (Capture, Selects, Output, and Trash) are displayed in the Library’s Session Folders panel and, as a Session can access the filesystem, those same system folders can be found in the System Folders panel.
In typical workflows, images are organized in the Session Folders panel using virtual folders, Session Albums, to filter related images. Session Favorites are just like the file-system folders that are often used to create sub-folders of one or two of the four Session sub-folders. Organizing images in Favorites means that the images are physically moved (like any system folder).