Because it is interpreted as being part of a TRUE/FALSE test as opposed to
simply a piece of text.

As for the folder, I'm guessing it is simply a special/reserved name for a
hidden Windoiws folder, or something like that.

Because it's a special value. The same thing will happen when you type in
"false". They will not only be in all caps but they will also be
automatically centered in the cell.

These are called boolean or logical values.

To enter the TEXT value: true

Either preformat the cell as TEXT or precede the entry with an apostrophe:
'true.

Here's an obscure bit of info:

If you need to count the number of TEXT entries of "true":

=COUNTIF(A1:A10,"*true")

A TEXT entry of true will not be counted in:

=COUNTIF(A1:A10,"true")

Because Excel  thinks it's a boolean but at the same time:

=COUNTIF(A1:A10,TRUE)

Will also not count the TEXT value "true".

Kind of strange!

Using the wildcard coerces the argument to be evaluated as TEXT and not a
boolean.

Biff