Mutt recognizes four FolderFormat""s. If a folder is correct by any of those formats' standard, then mutt can automatically read them, nothing needs to be done just for reading. However, when you create new folders (MuttFaq/Action), the format used is specified via "mbox_type":
See OverloadedNames for clarification of the various uses of "mbox" and "maildir".
An mbox folder is a plain text file. Each message starts with a "From " line (note the trailing space). For example:
From email@example.com Fri Jun 23 02:56:55 2000
Body-lines starting with "From" are usually escaped as ">From" if they occur in messages, but there is also a header "Content-Length:" that gives the number of lines in the message so that From escaping is not necessary. Mutt supports all formats.
The header is separated from the body by a blank line. See http://www.qmail.org/man/man5/mbox.html for details.
A maildir folder is a directory with exactly three subdirectories "new", "cur", and "tmp". Each message is a separate file. See MaildirFormat for details.
An MH folder is a directory containing either a .mh_sequences or .xmhcache file. Messages are separate files that are numbered sequentially. MH is rarely used, most prefer the maildir format.
This is a variant of the mbox format. Each message is surrounded by lines containing "AAAA" (four control-A's). Using this format is not recommended, few other programs support it.
Which format to use?
Don't use MH or MMDF, as these are not widely supported by other programs. Whether to use mbox or maildir is a matter of taste. mbox is sometimes easier to handle because it is just a single file, whereas with maildir you don't need to read the whole folder just to get a single message. The rest is philosophy, a big source of flamebaits, and an endless quest for the best way to benchmark it. Maybe MuttFaq/Maildir can help you out.
If you happend to choose either MH or Maildir, you can improve performance by using header caching, see MuttGuide/Caching for details.