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Folklore, in terms of literature, is defined as a society's traditional stories. These are passed down through time; they are often not written down but are passed down orally. An example would be a story like 'Little Red Riding Hood' which is very revealing of society's traditional concerns. Though its meaning may have changed over time, it remains essentially a parental warning to children to stay away from strangers.
A piece of folklore like 'Little Red Riding Hood' is also very revealing of archetypes: recurring characters in stories. In 'Little Red Ridng Hood' the archetypes are the innocent female needing protection, her chivalrous protector (the woodcutter) and the deceitful villainous imposter ( the wolf). It is worth noting that such archetypes will be found not just in folklore but also in modern films for example.
Folkore is also limiting because of these things: it deals with traditional concerns rather than new ones which might arise. Also its characters are archetypes, fulfilling a role, rather than distinctive individuals.
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