iPod Folder Options
Clicking the "Options..." button in the iPod Folder will bring up a sheet giving you several additional ways to configure your iPod folder's organization
When you sync an iPod with a folder full of photos, the photos will appear on the iPod in alphabetical order, as determined by the filenames of the photos. iPhoto Library Manager provides the option to, instead of using the photos' normal filenames, assign sequential numbers as the filenames of the photos as they are copied. This allows the photos to be sorted in a particular order (by photo date, modification date, rating, title, or their order as displayed in the album itself) so that they appear in that order when viewed on the iPod.
Note that the "album order" option will sort the photos in the order that they are displayed in the album in iPhoto, which depends on what option is selected from the View menu within iPhoto for that album. For instance, if you have an album manually sorted in a particular order, it must have "Manual" selected under View->Sort By in iPhoto if you want them to also be in the manual sort order in the iPod folder.
iPhoto Library Manager will copy photos to the iPod folder by default, but also provides the option to instead create a symbolic link or alias to each folder in the album. Unfortunately, neither symlinks nor aliases are understood by iTunes when syncing with an iPod, so neither of these options is useful for transferring photos to an iPod, but this option can come in useful if you're using an iPod folder for some other purpose, such as collecting photos for use by some other program.
By default, the modified version of a photo (i.e. the one that is displayed when you're browsing through your photos in iPhoto) is the one that is copied to the iPod folder. You can, however, elect to copy either the original photo, or the smaller thumbnail version of the photo instead. If a photo has not been modified at all in iPhoto, then the original will be copied when either the "Modified photo" or "Original photo" option is chosen.
Because the iPod screen is small and has a low resolution, iTunes must scale the photo down to an appropriate size when transferring it to an iPod. Since the photo is going to be shrunk down anyway, if you are only intending to view your photos on your iPod, choosing to copy the thumbnail version to your iPod folder carries a couple of advantages. Because the thumbnail version of photos are smaller, it will take less time to copy the files when updating your iPod folder, they will take up less extra disk space, and they will be easier for iTunes to scale down when syncing, thus speeding up the syncing process. However, if you intend to use the "Include full resolution photos" option when syncing your photos in iTunes, you will probably not want to use the thumbnail option, since if you do, the "full resolution" photos copied to the Photos folder on the iPod will actually just be the small thumbnail versions.
Checking this box will create a log file named "iPodFolder.log" inside the iPod folder. Each time the folder is updated, the actions that take place will be logged in this file. You can open this file later to see what photos were copied and when.
Checking this box will tell iPhoto Library Manager to automatically update the iPod folder whenever it detects that iPhoto has written out a new copy of its AlbumData.xml file. Note that iPhoto Library Manager must be running in order for any updating to occur, but it will automatically update as soon as you open the program