"offline folders" is the name of a type of storage in an .ost file. Cached Exchange mode uses offline folders in such a way that Outlook displays the offline cached copy of the data rather than going to the server for every item. This also makes it possible to continue working in Outlook even if the network connection is lost.
The older, classic connectivity also supports offline folders, but the user must choose when Outlook starts whether to work online or work offline with the offline folders.
--
Sue Mosher, Outlook MVP
Author of Configuring Microsoft Outlook 2003
and Microsoft Outlook Programming - Jumpstart for
Administrators, Power Users, and Developers