Using a folder you already have

This is the point of the feature.

Open Settings → Notes → Notes folder, or press 3 and choose "Use a folder I have", and pick your Obsidian vault or any folder of markdown. Everything in it is listed as a note straight away.

If another app changes a note while you have it open here, TypeFire notices and asks which version to keep rather than overwriting yours or theirs.

The folder cannot be your snippet folder

TypeFire refuses a notes folder that is, contains, or sits inside your snippet folder. Nesting either way would mix the two worlds together and the first save on a note would rewrite it into snippet format.