What is this 'Previous Libraries' folder?

You probably don't need it. If the Music app is updated at some stage a copy of your library files (not the media, just hte file that presents what you see in the app) is updated too. Just in case something goes wrong a backup is stored in that folder which would work with the previous version of Music should you need it.

You can leave it if you wish. The only real time you need it is if a Music app update corrupts the library during upgrading and you need to restore it.