You can run most apps from anywhere on your HD but it makes sense to keep them in one place so you can find them more easily. It can also help apps if it's looking for an earlier installed version.
And if you move your Apple apps from the Applications folder (or put them in sub folders), Software Update won't be able to find them.
For some programs, they have to be in the applications folder. For instance, in order for iWork to update, it has to be in Aplications-->iWor. Otherwise it won't work. For other programs it is just a matter of organization...