A shortcut has a name and icon just like a file and folder, and can exist anywhere a file or folder can.
The content of a shortcut is a link to another file or folder.
Most icons on the desktop and start menu are shortcuts.
Their icons usually have a small shortcut arrow symbol attached to distinguish shortcut icons from normal file icons.
Double clicking a shortcut (or right click and open) launches it. You can right click on shortcuts to launch/cut/copy/paste/delete/edit them, just like files.