The root directory on a system is the highest level directory. The job of a directory is to hold files and other directories. A directory is just another name for a folder. When you create a folder, you are creating a directory. Folders help you organize all your information. Even if your information is organized in folders, this just organizes them logically. On the physical hard drive, the data can be scattered. This is the importance of defragging your hard drive
The root directory does have some special qualities to it. For starters, this directory has a fixed size. Subdirectories can have their sizes changed dynamically. Also, this directory is at a fixed location.
Some operating systems store boot files and directories in the root. These are the resources the computer needs to start and run properly.
In some situations, there might be directories above the root, but the root directory is the highest directory you actually have access to. This is highly common on shared web servers. By getting access higher than the root directory on a shared web server compromises the security of all the other customers on the same server. So the company that owns the web server restricts access to the root directory. In this shared web server example, the root directory also happens to be the place where you place your homepage.
The term root directory can also be used relatively. You can specify the root of a certain folder if it has a lot of subfolders (or subdirectories). You really need to understand the context that this term is used in. The context can determine the location implied. Know that this is a somewhat loosely used term and can take on different meanings depending on the context.