Where to store the project folder on the desktop or in the documents folder?

To keep the Desktop reasonably clean, I would create a Projects folder in the Documents folder, use GIT for version control, and Time Machine backups to keep your projects recoverable. On the Mac, the location is really a personal choice. I keep all of my coding work subordinated to a Code folder on iCloud Drive, and back it up with Time Machine on separate Macs for redundancy.

I would create New folder labeled Projects at same level your Documents folder is locate.One created you can drag it to the sidebar on the left as a Favorite

Store your data wherever you want inside your home folder.

If you have enabled Desktop & Documents in iCloud Drive, those two folders are sync'd on iCloud.

You could create a new folder in your Home and call it Development or Dev, or whatever. Or, you could create the folder inside of Documents or Desktop or Movies or Pictures. Some of those wouldn't make must sense, though.

you will likely get many different opinions to your question. this is just how i do things. when i'm working on something, i keep it on my desktop for quick access. once i'm finished with the whatever it is and i no longer need it to be handy, i then place it in the appropriate location in my home folder. and you are not limited to the preinstalled folders. you can add as many or as few as you would like. as an example, here's what i did in my home folder.

Store it where you want. You can organize your workflow to suit your needs/preferences. Whatever you choose, make sure that you maintain a backup, preferably two, on external drives. If you are sharing your data across several devices, also use iCloud.