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What is the difference between "Create groups for any added folders" and "Create folder references for any added folders"?

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Groups are only within your project and are for organization purposes only. They do not reflect what is on the file system nor where the files will be compiled into in the app. Folders are basically like including a folder on the file system, where if you move a file within a folder reference, it will be reflected in your project as well. These folders are also reflected inside your app bundle when its compiled. I usually use groups. For example, on the file system I have all my classes in a /Classes folder but have them separated in my project into groups, such as View Controllers, Custom Views, Data Model, etc. These don't really need to be separate in the file system but its nice to have in the project. Sometimes I'll use folder references if it's important for the organization be maintained once it goes to the app bundle, but that is pretty rare. Also, when including files from a third party library that could be updated often, you can use a folder reference so you don't have to remember to add files when they are added to the library.