I found the video most helpful.
The Counterparty wallet provides a Bitcoin address. You enter username_FLDC_1BitcoinAddress into the f@h client. The text file of all folders is downloaded by the FoldingCoin team and parsed to find FLDC or ALL or SCOT plus the Bitcoin address.
I still don't understand how folders are paid in FLDC as they provide a Bitcoin address not a FLDC address.
In my case, I created a wallet with
https://counterwallet.coindaddy.io/#, which gave me a Bitcoin address. Was I supposed to do something else?