Your index file (whether it be index.htm, index.html, index.php or whatever) must be located in the /public_html/ folder or your site will not load properly as the web server treats /public_html/ as the root folder of your web site.
You can pretty much put everything else wherever you want, but it should be in the /public_html/ or in a sub-folder of /public_html/ for ease of use and management.
Any files that you have in your local folder that are not used in the site should not be uploaded because they will just take up your server space needlessly. I would recommend moving to a separate location on your hard drive until such time as you do need them, and then you can move them over.
Just as a real-world example; my site got suspended here this weekend for no ads even though I had ads on all of the viewable pages. After it got unsuspended, I double checked and found that I had accidently uploaded a couple of base "template" files that I used to create the real pages. Even though these pages are not linked in the site anywhere, they were the offending pages that didn't have the ads, so I'm assuming the script that x10 uses to detect these things saw these pages and marked them as violations. Since they were not actual site pages, I removed them. Hence making it a good practice to remove unused content from your local folder.