The inability to create a folder named 'con' stems from historical limitations in DOS, where 'con' refers to the console (keyboard and screen). Similar restrictions apply to names like 'com1:' and 'lpt1:'. However, it is possible to create a folder with the name 'con' by using the Alt+0160 key combination, which inserts an invisible space character. This folder can be accessed through the graphical user interface (GUI), but software will not recognize it unless the Alt+0160 character is included in the filename reference.