Here’s short overview:

/ app - is where the application resides

/ app / etc - is global configuration den

/ app / code - is where modules have installed their models and controllers

/ app / code / core - are core team developed or certified modules

/ app / code / community - are community contributed modules

/ app / code / local - are local customizations

/ app / code / core / Mage - magento default namespace

/ app / code / core / Mage / {Module} - module root

/ app / code / core / Mage / {Module} / etc - module configuration

/ app / code / core / Mage / {Module} / controllers - controllers provided by module

/ app / code / core / Mage / {Module} / Block - Block logic classes

/ app / code / core / Mage / {Module} / Model - Object Models provided by module

/ app / code / core / Mage / {Module} / Model / Mysql4 - Resource Models provided by module

/ app / code / core / Mage / {Module} / sql - sql installation and upgrade files between module versions

/ app / code / core / Mage / {Module} / sql / {resource} / - resource model specific upgrades

/ app / code / core / Mage / {Module} / sql / {resource} / {type}-{action}-{versions}.(sql|php) - resource update files. example: mysql4-upgrade-0.6.23-0.6.25.sql

/ app / design - is location of design packages (layouts, templates, translations)

/ app / design / frontend - frontend design

/ app / design / adminhtml - HTML admin panel design

/ app / design / {area} / {package} / {theme} - theme customizations

/ app / design / {area} / {package} / {theme} / layout - .xml files that define block structure for different cases in website flow

/ app / design / {area} / {package} / {theme} / template - .phtml (html with php tags) templates

/ app / design / {area} / {package} / {theme} / locale - Zend_Translate compatible translation files for package/theme

/ app / locale - locale files

/ app / locale / {locale (en_US)} - Zend_Translate compatible translation files for modules

/ skin / {area} / {package} / {theme} / - is where design package css and images are

/ lib - are libraries such as Zend and Varien

/ js - are javascripts smile

/ media - uploaded files (product images, pdf documents, etc)

/ tests - Unit tests (not done yet)

/ var - temporary files

/ includes - contains config.php