Files in a cabinet archive can be compressed across their file boundaries as a single compression block. Compression ratios improve significantly when files are compressed together as opposed to individually. However, there's a trade-off between random access time to an individual file and compression ratio since an entire folder must be decompressHuffed to extract an item from it. Folders can span cabinets. A file is an individual item in a cabinet.
Files can span folders.
Within a cabinet archive file, any combination of these techniques may be used. MSZip is essentially the same as the deflation compression method used by PKZip. LZX is an LZ77-based compression technique that uses static Huffman encoding. LZX uses more memory, but can produce better compression ratios than MSZip. Stored, of course, means the file is stored into the cabinet uncompressed.