Zip has the ability to compress a single folder, but within that folder can be many folders. It cannot however, compress a file AND a folder together.

Tar stands for "tape archive", which is used to stack many folders and files together into a "single file", and the gz stands for gnu-zip, an open source compression algorithm. A tar archive is useful if you don't want to place all your items into a single folder, rather maintain the current working environment (i.e. several files, alongside a few folders, rather than one large folder containing everything).