I`m just a week older than you in using JBoss and thing is that , the JBoss is deployed it without extracting it to a "folder" . It ll work whenever you start the jBoss!
The same question I Have (about extracted folder) .May be we hav to look deeper into JBoss wiki !!
link says that, either you can paste the war file as it is OR you post the exploded form of war , Exploded means just unzipped the war and paste the folder in deply directory , The advantage of using exploded form is you can change the web apps resources on the fly , like JSPs !!
If there is other than this , then I failed to understand !
In JBoss all packaged deployments (war,ear,rar,sar files etc) are extracted to a temporary folder when they are deployed. Look at the folder JBOSS_HOME/server/default/tmp/deploy The folders created for the extracted archives are given names such as "tmpXXXXXarchivename.ext" (your yourapp.war file may be extracted to a folder named "tmp23623yourapp.war")
What happens when you redeploy (i.e copies a new version of yourapp.war to the "deploy" folder) is that this also gets extracted to the temp deploy folder but under a different name. This means that you may find more than one folder under tmp/deploy for your application.
The tmp/deploy folder is always emptied during startup, so it is now point in making alterations to any of the files stored there.
With "exploded deployment" JBoss will not create any temporary files but will load the files directly from the "server/servername/deploy" folder.