The config folder in a Rails app contains important files that tell the app how to connect to the database, how to route web requests, and how to initialize settings like sessions. When the app starts, it reads these files in order: first database.yml to set up the database connection, then routes.rb to define URL paths, and then initializers for extra setup. This process prepares the app to run correctly. If any config file is missing or incorrect, the app may not work as expected. The variable tracker shows how settings like database connection and routes get configured step by step. Understanding this flow helps beginners see how Rails apps get ready to serve users.