Why the [system] directory?

[eluser]Adam Griffiths[/eluser]
The system folder contains CodeIgniter. The application folder contains all application specific data, config files, controllers et al. Without the system folder CodeIgniter won't work. It's much neater having two folders (system and application) than having many folders (libraries, helpers etc) and sub folders inside there for app specific and system files.

It's just the way CodeIgniter has been made, as simple as possible.

But if you mean why do we have a system folder for each application, then taking the system folder out of the web root, enabling access to it from many applications; well this is a good thing to do for your applications as it makes it easier to update CodeIgniter when a new release has been made.