I'm sort of confused between the 3.
Project: Contains distinct photos/videos. A given photo/video can't exist in multiple projects, if you drag a photo from a project to another project it moves that photo.
Album: Contains photos/videos from any number of projects but can only contain one instance of any photo or video.
Folder: Contains Projects and Albums.
So, Project A can contain Photo1 and Photo2 and Project B can contain Photo3 and Photo4. Album A can contain Photo1, Photo2 and Photo3. Album B can contain Photo2, Photo3, and Photo4. Folder A can contain Project A and Album B.
If you drag Photo1 from Project A to Project B it becomes part of Project B and is no longer part of Project B, it has no impact on Album A and Album B.
If you make a couple test case Project, Album Folders it'll become clear :)
Here is a HQ video tutorial about Library fundamentals which will also help you understand the differences and possibilities of Project, Album, Smart Album, Light Table, Book and Slideshow.