Sometimes Dr. DivX doesn't get to finish operating. There are a few different reasons why an operation may fail, but when it does, the doctor may leave some files behind in the temporary directory. If the Remove Working Folder option is checked, the doctor makes sure those temporary files are tossed out so they don't languish, wasting space. If you aren't a software developer and have no desire to become one, you probably want to check this option. The only reason to keep such files is for postmortem studies.
Dr. DivX will delete all working files in the temporary directory if a failure occurs and the Remove Working Folder option is checked.