While creating a project from a full folder may or may not work within the workspace, there's a condition outside of the workspace that prevents starting a new project with a full folder.
This is relevant if you use numerous folder locations for sources, for example an htdocs or www folder for web projects, and a different location for desktop Java applications.
The condition mentioned occurs when Eclipse is told to create a new project, and given a full folder outside the workspace. Eclipse will say the folder isn't empty, and prevent creating a new project within the given folder. I haven't found a way around this, and any solution requires extra steps.
My favorite solution is as follows
Eclipse should make a new project, and update that project with the new folder contents as it scans for changes. The existing sources are now part of the new project.
Although you had to perform three extra steps, you now have a backup with the original sources available, and are also able to use a copy of them in an existing project. If storage space is a concern, simply move/cut the source rather than fully copy the original folder contents.