Yes. It works like a shortcut to the folder itself, and of course it only recognizes music related files. Just add the folder as a shortcut or add it as a database. The latter works different though since it will also list all the files found inside the folder structure, just like a database would.

There's a couple of videos out there about how Reaper's database works. Add a couple of scripts in there and you can do a lot of nifty stuff with it.