This folder is automatically created. In older versions, if the /badges/ directory is not automatically created by Tinderbox on installation, so simply create it manually (note that all the folder names in the path are case-sensitive). Tinderbox polls the '/badges/' folder whenever the Badges menu is called so newly added files will be seen immediately.
To separate out separate sets of artwork, e.g. for different projects, collections of badge files can be placed in discrete sub-folders inside the 'badges' folder. In such cases, the folder shows as a new tab on the badge picker pop-over.
Badges are square PNG format files (transparency is supported). The app's default sets use 32 x 32 pixel artwork which is displayed in most views at 16x16px. $BadgeSize can be used to override this.
The name of a custom badge shown in the Badges menu is name of the custom badge icon file minus the extension, and is case-sensitive. So, the custom badge file 'car.png' will have the badge name 'car'. The naming convention of the built-in badge names is single lowercase words. It appears that if setting $Badge via action code the name string is case-insensitive.
If a custom and built-in badge name clash, the first listed (the custom one) will be used.