The question is pretty straight forward. I don't understand the difference between these two plugins, should I install both, or is one better than the other?
The locate files plug-in uses the locate command to search for files on your entire computer. You use it by typing "locate" into gnome-do and pressing tab, then entering your search term, pressing enter and scrolling through the results. I've used it in the past but I have a terminal open all the time anyhow so turned it off.
Files and Folders, by default, indexes all the files and folders in your /home/username, /home/username/Documents, and /home/username/Desktop but can be configured to index whichever folders you like. It can be a handy way to pull up a folder or a file you reference often.
I use Files and Folders and configured it to index a few other folders I commonly use.
The "files and folders" plugin makes the configured files and folders directly available from the initial gnome-do pane. If you have a file named "mydocument.pdf" in your ~/Documents folder, you just hit super space mydocument.pdf and it will let you open the document. Auto-completion is available for mydocument.pdf so you don't need to type the whole thing and if you use it a lot, gnome-do will learn to show it to you after just typing "m".
In contrast, when using locate, you first need to select the "locate" command (for which auto-completion is available), then type a search string for the file (without auto-completion), then select the file from the results.
Locate has access to your whole file system, but is less convenient for commonly-used files. "files and folders" is more convenient, but would be slow and confusing if you indexed your whole hard drive.