What exactly is wrong with that? In Rails, you have app/controllers and app/views. UI code and server code sharing the same base directory.

Does seem potentially problematic if you don't want to be exposing server-logic. Especially when the developer may not know what software will be ultimately serving the static files over http.

As a newbie webdev, what would you suggest? Making an API-based web application? (the backend would serve and receive JSON and the front-end would simply play around with it) Or am I completely misunderstanding this.

That's a reasonable way to build an application, and one that I personally prefer, but there isn't a silver bullet. But if you're building a Node app your server js and your client js don't need to commingle. Make a src/js/client directory, and stick your package.json in there (if you want to use this tool).

Socketstream is a framework in active development based on exactly that idea.

The grandparent was talking about Node, which doesn't tell you how to organize directories like Rails.