btrfs-image vs xfs-image. Dealer's choice. No fundamental difference between the two
Image vs folder. An image is say 20 Gig and always 20 Gig. A folder is going to be say 1Gig, but as you install stuff will grow accordingly and if you uninstall will shrink accordingly.
IMO, the image is the antiquated method of handling docker on Unraid. The real reason for the image being in existence is that in the 6.0 beta series (very early betas), the cache drive HAD to be formatted BTRFS if you wanted to run docker (and a folder was used). Since many people didn't want to run btrfs on the cache drive, the image solution happened.
Nowadays, since the docker system supports the folder on btrfs, xfs, and zfs I don't see the point anymore in the image method anymore.