Since Minecraft 1.6, ModSystems have supported two mod folders, these are:

• The 'mods' folder: usually located at .minecraft/mods/
• The versioned 'mods' folder: usually located at .minecraft/mods/<version>/

  (where <version> is the version of minecraft in question, eg. 1.7.10)

ModSystems treat these two folders differently when it comes to loading mods. In general, all files in the 'mods' folder will be inspected when starting the game, regardless of the version of the game being launched. Files in the versioned 'mods' folder will only be inspected for the specific version of the game being launched.

Forge Mod Loader (FML) will indiscriminately load .jar files in the 'mods' folder, this can be a problem if a specific mod is not compatible with the current version of the game, the versioned 'mods' folder allows this behaviour to be controlled, and allow mods which only support a particular version of Minecraft to be separated out.

A key feature of LiteLoader is that it will not load mods for different versions of Minecraft because it explicitly requires that mod authors specify the version of their mod in the metadata, thus allowing it to ignore invalid mods. You may therefore think that the versioned 'mods' folder is irrelevant from LiteLoader's point of view. This is not quite true however because LiteLoader provides some special handling of files in the versioned folder:

LiteLoader mod jars use a special extension .litemod in order to prevent FML from loading them and in general liteloader ignores .jar files. However there are other types of mod which LiteLoader can load which do not contain liteloader metadata, namely Tweaks. In order to allow the loading of tweak mods (for example Optifine), LiteLoader must inspect jar metadata. However since Tweak mods are not required to specify supported versions in their metadata, LiteLoader will only load tweaks from the versioned 'mods' folder.