iPhoto - difference between Album vs. SmartAlbum vs. Folder

You can manually add photos to Albums to group the photos; e.g. 2022 vacation.

You can add Albums to Folders to group the Albums; e.g. you could create a Vacation album and it could contain albums that you add to the folder such as 2022 vacation, 2023 vacation, Hawaii vacation, etc.

Smart albums automatically add photos to the album based on rules that you set. See: Create Smart Albums to group photos automatically in Photos on Mac - Apple Support

An Album is an ad hoc selection of Photographs. It is selected by you on whatever basis you prefer. You create and you decide what the Album contains.

A Smart Album is a selection created by the app, consisting of photographs that meet criteria you decide. So, you can elect between any of the below:

as criteria. They can be used in combination or singly and they can be used both positively and negatively. So you can search for all the shots taken with flash on a particular date but which are not already in an Album. And so on.

A folder is a grouping of Albums and Smart Albums. Folders do not contain individual photograph, only albums and smart albums.