Folderol continues to evolve over time. The latest version (1.95) includes some new and re-stated options. A summary:

folders only: This option prevents folderol from coloring non-folder items like text files. It is enabled by default because OS X builds previews for many document types. When colored by folderol, you lose those document content hints.

tint and tag (OS X 10.9 and later): This option enables you to add custom tags as well when coloring items

replace icon entirely with custom image: This option swaps in your source image preventing icons from cropping to folders and other file shapes.

don’t blend custom image with original icon color: some users really didn’t like the way folderol blended images to the default blue folder color. This option better preserves source image hues.

fit custom image to icon: folderol normally adapts any art to the destination geometry, stretching or squashing the art to fit. Enabling this option forces the image to keep its original aspect ratio. This option may add padding effects (letterboxing or pillarboxing) to the final icon.