The Windows Shell is organized into a hierarchy called the Shell namespace: Introduction to the Shell Namespace:

The Shell namespace organizes the file system and other objects managed by the Shell into a single tree-structured hierarchy. Conceptually, it is a larger and more inclusive version of the file system.

What it means is, in the Shell Namespace, there are file system (or what I call "physical", considering possible kernel file systems as physical too) items and virtual items. Example of virtual items are:

• The "This PC" folder
• The Recycle Bin (where item have links into the file system)
• The Control Panel (fully virtual)
• Search folders (where items are links into other items)
• Custom namespace extensions (you can extend the Shell namespace with a custom Shell Namespace Extension to connect to a database, a cloud storage, etc.)
• etc.

All these items are identified using the same system: PIDLs. A PIDL is to a Shell Item what a full file path is to a (physical) file or folder.

Items can also be identified using their Parsing Name which is indirectly defined by IShellFolder::GetDisplayNameOf method and by _SHGDNF enumeration, if the containing folder supports it. Note a PIDL is strictly mandatory (each item has one) while a parsing name is not.

Since Windows Vista, it's recommended to use IShellItem-based API. And IFileDialog is also recommended because it supports PIDLs (=> virtual items), not only file system paths.

The pseudo code for SHCreateItemFromParsingName is more or less:

1. call SHParseDisplayName(name) => a PIDL (old PIDL-based API)
2. call SHCreateItemFromIDList(pidl) => an IShellItem

Which indeed proves that SHCreateItemFromParsingName could have been called SHCreateItemFromDisplayName...

Internally, SHParseDisplayName's code is more or less:

1. get desktop's IShellFolder (desktop is the root of the Shell's namespace)
2. call IShellFolder::ParseDisplayName(name) => a PIDL (relative to desktop which is the same as absolute since desktop is the namespace root)

IShellFolder is the interface implemented by all namespace folders: standard Windows-provided ones and custom ones, serving file system items or virtual items.

Now, IShellFolder::ParseDisplayName implementation vary. A custom Shell Folder can choose to implement it the way it likes (which can cause issues).

However desktop's IShellFolder implementation is quite complex and understands file system paths in lieu of display name. The doc says this:

A null-terminated Unicode string with the display name. Because each Shell folder defines its own parsing syntax, the form this string can take may vary. The desktop folder, for instance, accepts paths such as "C:\My Docs\My File.txt". It also will accept references to items in the namespace that have a GUID associated with them using the "::{GUID}" syntax. For example, to retrieve a fully qualified identifier list for the control panel from the desktop folder, you can use the following:

::{CLSID for Control Panel}\::{CLSID for printers folder}