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The System Folder is both the entry point and the hub of the Dolphin development environment. It displays a number of icons that can be used to launch the various development tools. The folder also contains sub-folders (such as Additional Tools and Samples) holding further, less commonly used, icons within them.
You can use Help/What's This? (Shift+F1) inside Dolphin to get a brief description of each of the tool icons.
The System Folder is implemented by the SmalltalkSystemShell class in the image.
You can navigate around the System Folder hierarchy in much the same way as with any Windows folder. Double-clicking on a folder will open it, and the Up toolbar button will move back to the parent folder.