With VSCode, you open the program window, that’s basically your workspace. So adding the first folder to the workspace means opening a folder in VSCode. And down the left hand side there will be a file navigator panel.
You can add more folders to the workspace, either use the relevant command to add another folder, or by just right clicking on the empty space at the bottom of the navigator and selecting “add folder to workspace”. So this allows you to work on multiple projects at once in the same window, and you can navigate between them using the file navigator, or search in all the open folders, or find and replace across projects etc.
What it also.means is that you can apply VSCode settings to that workspace. This is what the .code-workspace file is for. So, as an example, say you were working on a project that required tabs instead of spaces in the code. You could open that project, apply the setting that automatically always used tabs, then save the workspace. Everything else you opened would still use spaces. But if you reopened that workspace file, it would set up the VSCode window you opened it in with that project folder and that tabs setting.