Just for insight into what that folder really is -- it's like a link to a folder on your hard drive. It's not an actual folder itself... just a way to quickly access an existing folder on your hard drive, from the Dock.
For example, if you wanted to be able to list all your Applications with a click of the mouse in the Dock, drag your Applications folder from your hard drive into the right-hand side of the Dock. If you don't want it there, drag it out.
You can change how icons in those folder "links" are displayed when you click on them -- instead of flying out, you can have it present the contents of the folder in a grid view (columns and rows), or in a list view (like the "File," "Edit," or "View" menus in the menubar), etc. You can do this by right-clicking (or command-clicking) on the folder in the Dock and changing the "View content as" setting.
Edit: I see SGilbert and DeltaMac already said some of that. Credit where credit is due.