People have developed this very useful and oftentimes strikingly successful tool for predicting the behavior of other humans as well as that of some "higher" animals (e.g. "usually, when you think that your actions have been inappropriate, you try to figure out some way of dealing with the situation that doesn't exacerbate the problem" or "usually, when the dog thinks that there's someone at the door, it starts barking").
Folk theories, i.e. theories that are based on common, everyday experiences, but not subjected to rigorous experimental techniques, underlie many (likely, all) of our actions. For instance, a fairly sophisticated folk physics (the theory of the behavior of middle-sized, common objects, such as tables, chairs and bowling balls) is essential to our everyday interactions with the surrounding environment. (Just think of all the assumptions you make about the clothing you're currently wearing, e.g. that's it's not going to melt, that it stays at a certain temperature range in standard conditions, that it won't protect you from missiles, etc.) Similarly, folk psychology is the basis for (all?) our social actions and judgements about the psychology of others. It encompasses all of the assumptions we make about the correlations between people's behavior, mental states, and surrounding conditions.
Folk physics has been, to a large extent, discredited and shown to be thoroughly inadequate in providing robust explanations of various physical phenomena. This, of course, raises the question of how folk psychology would fare in this respect.
Philosophers of mind take various attitudes toward the possibility of vindicating/extending folk psychology by allowing its theoretical terms (e.g. 'belief' 'desire' etc.) to play a role in serious scientific theorizing. Among the advocates of such a possibility, Jerry Fodor is surely the most notorious. For a locus classicus of the defense of this view see his 1987 book "Psychosemantics". The other extreme is exemplified by eliminative materialists, such as Paul and Patricia Churchland and Stephen Stich. Stich's book, "From Folk Psychology to Cognitive Science: The Case Against Belief" has received much attention in this regard.