Collections only have a reference to the original assets or a search query in case of smart collection. Your folders will have the actual assets. Assets are grouped into different folders based on customer's taxonomy and business requirements. Collections can be used to group assets(again only references are stored) from different folders for sharing.
AEM Collections are a set of assets bundled together, which can include different types of assets like images , pdf and videos from different locations. Many times we face the requirement where a customer wants to share group of multiple types of assets with either internal or external clients, this can be achieved using aem collections. These collections can be shared with various users with edit level, owner level and viewer level privileges
This kind of feature you can't achieve using jujst folders.