The Flood Control Content (Content) project inside Solution Explorer is a special kind of project called a Content Project. Items in your game's content project are converted into .XNB resource files by Content Importers and Content Processors.
If you right-click on one of the image files you just added to the Flood Control project and select Properties, you will see that for both the Importer and Processor, the Content Pipeline will use Texture – XNA Framework. This means that the Importer will take the file in its native format (.PNG in this case) and convert it to a format that the processor recognizes as an image. The processor then converts the image into a .XNB file, which is a compressed binary format that XNA's content manager can read directly into a Texture2D object.
There are Content Importer/Content Processor pairs for several different types of content—images, audio, video, fonts, 3D models, and shader language effects files. All of these content...