Images media folder
Magento keeps images under media/catalog/product/ folder, full path to the file in adminhtml can be for example media/catalog/product/[1st_letter_of_filename]/[2nd_letter_of_filename]/filename.jpg
In frontend images loaded from media/catalog/product/cache/ folder, full path to cache file in frontend can be for example media/catalog/product/cache/image/*, media/catalog/product/cache/small_image/* and media/catalog/product/cache/thumbnail/*
When we do System -> Cache Management -> Flush Catalog Images Cache it deleted entire media/catalog/product/cache folder