Question:
What is the difference between "Protected" storage and "Folder" storage?
Answer:
"Protected" storage is where temporary files are created as encrypted.
"Folder" storage is where temporary files are created as un-encrypted.
See this Microsoft Developer Network article for reference.
Note:
If whole disk encryption is already in use, then additional encryption may be disallowed by the encryption technology that is in use at the disk-level. In that situation, use "Folder" storage.