STANDARD FILE SYSTEM
The standard file system is exactly what you might expect. This is a method where you have a standard collection of files and folders and any files you upload will simply be available via the path to that folder. This is the file system that most individuals are familiar with. You would use this file system option when you are not concerned about access to your files, for example this is where you could place your logo file for your portal or a freely available image file.
SECURE FILE SYSTEM
A folder that is created as a "Secure File System" folder within DotNetNuke is a folder that will still store files in the logical file structure that you layout, however, the files within this directory will have .resources appended to the filename when it is saved. This method prevents any person from linking directly to those files as ASP.NET will NOT serve .resources files to a remote browser.
Now, you can use this functionality to protect files that you don't want others to hotlink to. You can utilize the DNN LinkClick.aspx file processor to actually serve the file up when it is needed which makes it possible for you to set the file view permissions to restrict the viewing to just authenticated users or any other selected role. This provides a great means for you to protect your important data.
This final option is similar to the secure file system in that it provides a secure location for your files to be saved. The difference is in where the actual files are stored. With this option all files are actually stored in your sites' SQL Server database and are extracted and served to your users when needed. Due to this I would only recommend using this option or HIGHLY secured files that you want to be 100% sure are embedded into your applications database. If you are storing large files using this method you might notice that its performance is the slowest of all three options.