This folder is automatically scanned when the game boots for VPK files or subfolders. Each subfolder or VPK is added as a search path, so the files inside those VPK's or subfolders will overide the default game files. See gameinfo.txt for more details. For example, you might have the following file structure: cstrike/custom/my_custom_stuff/ <<< This subfolder will be added as a search path cstrike/custom/my_custom_stuff/models/custom_model.mdl cstrike/custom/my_custom_stuff/materials/custom_material.vmt cstrike/custom/my_custom_stuff/materials/vgui/custom_ui_thing.res cstrike/custom/some_mod.vpk <<< This VPK will be added as a search path cstrike/custom/another_mod.vpk <<< This VPK will be added as a search path Mounting a VPK to the filesystem is more efficient that adding a subfolder, because each time the engine neds to open a file, it will need to make a call to the operating system call to search the folder. VPKs can be searched by the engine much more efficiently. Each subfolder is a new search path that must be checked each time the engine tries to open a file. So for optimal load times, always use VPK files and don't make any subfolders in this folder! Note that the following directory structure is NOT correct: cstrike/custom/models/my_model.mdl That will add the directory "cstrike/custom/models" as a search path, in which case the file my_model.mdl actually exists at the root of the game's virtual filesystem.