A hotfolder (AKA a watched folder) is simply a folder that is constantly scanned for input files. When a file appears, K2 attempts to process it with the workflow associated with the folder.
Each time you create a workflow in K2, the system automatically creates a new hotfolder for it in the network shared folder at C://K2/K2/Workflows.
If you change the name of the workflow, the name of the folder will change as well. If you add or delete workflows, the corresponding folder will be added or deleted.
A comprehensive look at hot folder input is in this video, below: