custom module folder
It shouldn't break anything, and it has no special meaning to core: as long as it's in a modules directory, it will be searched recursively (which is why larger projects often have submodules in a subdirectory). 

However, it does allow site-builders to organize their modules more neatly than just lumping everything together. You'll often see modules/ directories structured in a way similar to this:


/path/to/modules/contrib: Modules downloaded from contrib
/path/to/modules/custom: Custom modules that you write for this site
/path/to/modules/devel: Modules not meant to be enabled on live
/path/to/modules/features: Modules created by Features


This organizational setup is often used when building installation profiles and distributions as well, so if you download a few you'll probably see more examples of this sort of organization put into practice.