Files are normal files that you create on your computer, but for one reason or another, wish to post on your website. One common need is to post PDF files, perhaps for a newsletter or brochure. Another common need is to post word processor or spreadsheet files to share. You don’t edit these files with Kotti, but you can add them anywhere, and you can link to them from documents.
Images are not Files, per se, in the context of Kotti. Images have their own content type.