folder, folder icon

In general, try not to talk about UI. Instead, talk about what the customer should do.

In content about Windows, use folder to refer to a container for files and other folders. Use directory only in content for developers when you need to refer to the structure of the file system or to match the API. For MS-DOS, use directory.

Use folder icon to describe the visual representation of a folder. Don't use directory icon.

Note Not all folders contain files or other folders. For example, the Printers and Control Panel apps are also folders. Describe the nature of the folder, if necessary.

In instructions, use bold formatting for the folder name if you're directing the customer to select, type, or otherwise interact with the name.

Examples
You can find the file on your hard drive in C:\Windows\System\Color.
You can find the file on X:\Windows\System\Color.
You can find the file in the Color folder.
The system files are in the System subdirectory in the Windows directory.
Select the Windows folder.
Select Documents, and then select the file you want.

See also Describing interactions with UI, Formatting text in instructions