What is the difference between "Protected" storage and "Folder" storage?
"Protected" storage is where temporary files are created as encrypted.
"Folder" storage is where temporary files are created as un-encrypted.
Please see this MSDN article as a reference.
If whole disk encryption is already in use, then additional encryption may be disallowed by the encryption technology that is in use at the disk-level. In that situation, use "Folder" storage.