Main Directory and Default Directory?

[Suicide Junkie]

That terminology is more SE4 than windows.

I would say:

Main Directory:
Always refers to the first directory/folder that holds SE4: IE, the one where you find the SE4.EXE and PATH.TXT files.

Default Directory:
Refers to one of the subfolders/subdirectories inside the Main Directory. Examples are "Data", "Pictures", "AI".

The default folder/directory to find "settings.txt" would be "c: \MM\se4\Data", or something similar, depending on where you installed the game.
Mods may cause SE4 to look for files in places other than the defaults.