Is there any difference functionally in a playlist located in the Playlist directory versus one in another directory?
Yes; one way they’ll work and the other, they won’t. PLA playlists get stored in the Playlists folder; M3U format playlists get stored iin the Music folder along with your music files.
.pla playlists don’t have to be in the playlists folder. They work fine wherever, although I heard storing them on the card might mean they get deleted on a database refresh but this hasn’t happened so far to me (umm… as far as I can remember).
The Clip+ will display your .pla format playlist under the “Playlist” menu, regardless of where you have placed the .pla file.
I would strongly recommend that, once you generate a (.pla) playlist, put the file in the Playlists folder, so that YOU can find it later. M3U files have to reside in the same folder as the listed music.