Hiarchy of iTunes Folders, and Where Music ACTUALLY resides

Running iTunes on PC, Windows 10, 6TB Memory, just downloaded latest iTunes update 4 days ago. To be clear, I download music from lots of sources, iTunes, Amazon, and other online services. I also use Wondershare Video Converter to flip videos to MP3, then put them in iTunes.

I'm not at all certain how to describe my problem, thus the title. I have a large iTunes file of mainly music. Here we go:

After I've downloaded an album from The Store, what actually happens with it IN iTunes? is it automatically copied to the Library, as well as iTunes Music Cloud? Until 3 days ago I'd never physically added to a library. Sometimes, while working within the Library, when I click on the album, and open the folder, there's nothing there?