A complete guide to CLAUDE.md, custom commands, skills, agents, and permissions, and how to set them up properly. Most Claude Code users treat the .claude folder like a black box. They know it exists. They've seen it appear in their project root. But they've never opened it, let alone understood what every file inside it does. That's a missed opportunity. The .claude folder is the control center for how Claude behaves in your project. It holds your instructions, your custom commands, your permission rules, and even Claude's memory across sessions. Once you understand what lives where and why, you can configure Claude Code to behave exactly the way your team needs it to. This guide walks through the entire anatomy of the folder, from the files you'll use daily to the ones you'll set once and forget. Two folders, not one Before diving in, one thing worth knowing upfront: there are actually two .claude directories, not one. The first lives inside your project and the second lives in your home directory: The project-level folder holds team configuration. You commit it to git. Everyone on the team gets the same rules, the same custom commands, the same permission policies. The global ~/.claude/ folder holds your personal preferences and machine-local state like session history and auto-memory. CLAUDE.md: Claude's instruction manual This is the most important file in the entire system. When you start a Claude Code session, the first thing it reads is CLAUDE.md. It loads it straight into the system prompt and keeps it in mind for the entire conversation. Simply put: whatever you write in CLAUDE.md, Claude will follow. If you tell Claude to always write tests before implementation, it will. If you say "never use console.log for error handling, always use the custom logger module," it will respect that every time. A CLAUDE.md at your project root is the most common setup. But you can also have one in ~/.claude/CLAUDE.md for global preferences that apply across all projects, and even one inside subdirectories for folder-specific rules. Claude reads all of them and combines them. What actually belongs in CLAUDE.md Most people either write too much or too little. Here's what works. Write: Build, test, and lint commands (npm run test, make build, etc.) Key architectural decisions ("we use a monorepo with Turborepo") Non-obvious gotchas ("TypeScript strict mode is on, unused variables are errors") Import conventions, naming patterns, error handling styles File and folder structure for the main modules Don't write: Anything that belongs in a linter or formatter config Full documentation you can already link to Long paragraphs explaining theory Keep CLAUDE.md under 200 lines. Files longer than that start eating too much context, and Claude's instruction adherence actually drops. Here's a minimal but effective example: That's ~20 lines. It gives Claude everything it needs to work productively in this codebase without constant clarification. CLAUDE.local.md for personal overrides Sometimes you have a preference that's specific to you, not the whole team. Maybe you prefer a different test runner, or you want Claude to always open files using a specific pattern. Create CLAUDE.local.md in your project root. Claude reads it alongside the main CLAUDE.md, and it's automatically gitignored so your personal tweaks never land in the repo. The rules/ folder: modular instructions that scale CLAUDE.md works great for a single project. But once your team grows, you end up with a 300-line CLAUDE.md that nobody maintains and everyone ignores. The rules/ folder solves that. Every markdown file inside .claude/rules/ gets loaded alongside your CLAUDE.md automatically. Instead of one giant file, you split instructions by concern: Each file stays focused and easy to update. The team member who owns API conventions edits api-conventions.md. The person who owns testing standards edits testing.md. Nobody stomps on each other. The real power comes from path-scoped rules. Add a YAML frontmatter block to a rule file and it only activates when Claude is working with matching files: Claude won't load this file when it's editing a React component. It only loads when it's working inside src/api/ or src/handlers/. Rules without a paths field load unconditionally, every session. This is the right pattern once your CLAUDE.md starts feeling crowded. The hooks system: deterministic control over Claude's behavior CLAUDE.md instructions are good. But they're suggestions. Claude follows them most of the time, not all of the time. You can't rely on a language model to always run your linter, never execute a dangerous command, or consistently notify you when it's done. Hooks make these behaviors deterministic. They're event handlers that fire automatically at specific points in Claude's workflow. Your shell script runs every time, no exceptions. All hook configuration lives in settings.json under a hooks key. Claude Code snapshots the config at sessi