You have good a point that up until now, we haven't really discussed what the virtual filesystem would look like from the POV of the end user. So, I'll make an attempt:
We're all familiar with the age-old MSTS data directory:
/Microsoft Train Simulator
/Global
/Routes
/Sound
/Trains
What the virtual filesystem will do is allow you to compose your MSTS data from multiple overlapping sources. Such sources can be directories or archive files. (Network sources like HTTP or GitHub would also be possible, but would be severely constrained by the performance of your Internet connection.)
It will be entirely up to you as to how you want to organize your sources. One could imagine a system like this: Start with the base MSTS data, then add XTracks, routes, and rolling stock. (Alternatively, you could choose not to bother with the VFS at all, in which case your "Microsoft Train Simulator" directory would itself be a single source.)
/MSTS1.2
/Global
/Routes
/Sound
/Trains
/XTracks.zip
/Global
/RatonSubdivision.zip
/Routes
/Trains
/SouthwestChief.zip
/Trains
/ORPathEditor
/Routes
Open Rails will then combine all five sources into a single virtual data directory (with Global, Routes, Sound, and Trains folders) that only exists in memory. If there are conflicting paths, then sources that are later in the load order will take precedence. As a user, you will also have the ability to change your source load order.
The motivation is not trying to avoid file duplication, or even attempting to improve on Kuju's directory structure (you'll notice that that does not change as part of this proposal)—it's that you'll have an additional abstraction layer with which you can organize your content. If you want to uninstall an activity, you can just delete its package! There's no need to hunt down its individual traffic, service, path, and consist files. As a content creator, you could package up your stuff into a ZIP file that could be loaded directly by Open Rails as a VFS source. This would make it much easier for users to install it.
Ignore the stuff about the /OR namespace and the file path reference system. It's not relevant until we design new OR editors and file formats.