The SendTo folder contains shortcuts to objects that you can send a file to by right-clicking on the file, selecting "Send to", and the destination. Pre-defined destination examples include a shortcut to the A: drive, My Documents, etc. A shortcut to Notepad, however, is not there by default.
Having a shortcut to Notepad in SendTo is very useful when you have a text file with a weird extension that you want to quickly view but don't want to go through the hassle of associating Notepad to the file. Or it could be an HTML file that's associated to your web browser but all you want is to view the source. You can find the SendTo folder under either "C:\Documents and Settings\user_name" or under "C:\Windows".
Here is a video on how to accomplish this under Winodws 7/8: