My attempt to explain the difference:
- Open folder as vault
Choose this option if you already have a folder containing your notes in.mdformat, so that you can “import” your existing work into Obsidian. - Create new vault
Choose this option if you don’t already have a folder of markdown notes, so that you can start from scratch.
Of course, you can always choose “Create new vault” when you open the program for the first time, and later on manually copy & paste markdown files into the vault folder.