This feature allows you to locate where a generated file or folder resides on your hard drive and automatically open it up or highlight it in the Windows Explorer.

For example, in this screenshot,

 the Expander - [%PROJECT_NAME%] will expand to "CoreRazor", hence the Output Folder effectively becomes: d:\generated\CodeStencil\CoreRazor

When you use the Locate File/Folder menu, the following folders - src, pages will be added to the path hence the Windows Explorer opens up to : d:\generated\Code\CoreRazor\src\Pages as shown here: