Folders:
Execute -> Actually enter that folder but not be
able to read it contents, see what files are located there.
Read -> Be Able To Read Folder Contents
Write -> Edit folders data. delete or create new files/folders inside it and etc
File Permissions:
Execute -> if it script like index.php run it to get data from it
Read -> if it text file like index.html or index.php be able to read it
Write -> ability to change its data
As for security, these permissions are only a problem when your server is accessible to other users (not from your team), and this mainly happens when people using hosting services do not get a dedicated operating system, but there is one operating system and all users where they upload their data. Therefore, if they were not properly protected, they could view and edit each other's source codes.
Today, as usual, you get a dedicated server, with a large number of security tools and an operating system available only to you and to no one else (virtualization).
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