Clients (Blue Boxes)

Clients live only at the top level of your outline structure in the Organize view.  You can use them to group your projects by client.  If you don’t have clients, you can use them for your internal departments or groups.

Projects (Blue Folders)

Projects can live either at the top level of your outline structure or directly under a client in the Organize view.  Projects are unique in that you can create a Project Portal for them. Note that when you use the add project command, it will automatically create a matching Tasklist for your new project. 

Time tracking for clients and projects:  If you organize your work under clients and projects, your timesheet reports will display tasks automatically with the client and project they belong to.  You can also create timesheet activities for clients and projects.

Folders

Yellow folders can be used to create additional structure underneath your major projects (e.g. for sub-projects or phases) in the organize view.  Folders can easily be converted to projects via right click > advanced > convert folder to project.  Just be aware that it's a one way trip, so think about it before converting.

Putting it all together: