A media file is a file which contains one of four types of recorded media: images such as pictures, video recordings such as movies, audio recordings such as music, or portable document format (PDF) documents such as books.
You may choose to launch the default application for a selected media file and use the full capabilities of that application on that media file. For example the default application for an image may be Photoshop, GraphicConverter, or any other image processing application, as selected by your system.
My Albums itself does not copy or modify folders (aka directories) and media files. It simply records the path (aka symlink, see http://en.wikipedia.org/wiki/Symbolic_link) to a folder or media file. Since the path also includes a volume name, My Albums can create albums and access media files on any attached volume (e.g., external disk, flash drive, etc.)
Complete documentation is available from the Help menu.