I have been placing books that are not from the Sony ebook library in a folder called "Books". I notice that the books I downloaded from Sony are in a folder called "My Books". There is also an empty folder called "My Digital Editions". I have 2 questions.

1. What is "My Digital Editions".
2. In the ebook library are the entries in books just pointers to these folders or is there another copy somewhere on the computer?

1. What is "My Digital Editions".
That's where any DRM'd ePubs or PDFs you buy should end up after downloading with ADE (Adobe Digital Editions).

2. In the ebook library are the entries in books just pointers to these folders or is there another copy somewhere on the computer?
It's just a pointer.

My Digital Edition is paired with ADE, My Books is usually paired with EBL (Sony Software).