When you create a website folder it's usually put in the /Websites/ folder within your Visual Studio/Visual Web Developer folder. The folder in the projects folder just contains information about the project as opposed to the actual project files.

So say I have a project called Overland my project file is here: C:\Documents and Settings\Owner\My Documents\Visual Studio 2008\Projects\Overland but that only contains the project file, the folder which contains all my pages can be found here: C:\Documents and Settings\Owner\My Documents\Visual Studio 2008\WebSites\Overland

I hope this helps if not please do feel free to ask for more information.