Let me use an example it might help it clear things up:

Let's say your web space is /var/www/html and this is where your .htaccess is located and you used the one I provided above.

Now, in that directory you have a folder named "foobar" that actually exists on the filesystem (/var/www/html/foobar/). Using my .htaccess file a request for hxxp://www.yourdomain.com/foobar/ will serve the content from /var/www/html/foobar/.

Now hypothetically, lets say you have a Zend Frameworks app also running in the same space (/var/www/html/). Additionally, you have a controller named 'foobar' (/var/www/application/controller/FoobarController.php). My statement above was basically warning you, that any request for the controller foobar, would be sent to the directory (because it exists on the filesystem) and the .htaccess is checking to make sure the requested item doesn't exists (file or directory) before dispatching the request to index.php. So it never makes it to the index.php and Zend Framework.

Make sense? Or just more confused?