Steve Ohio you are totally right, this album is virtual, you can safely delete it.
However deleting files that are in the album will actually delete files. I personally find it way more convenient to delete files right from this album, rather than going to their folders first. It typically is enough for me just to check actual location in File Info panel to chose which one to delete.
And yes, this folder will repopulate every time you press “To Album” button in the dialog.