By default, Quark creates a preferences folder in Users>My User Name>Library>Preferences>Quark>Quark 8 (or what ever version you have). If you create a folder and call it Preferences within the Quark application folder (as you have done), new default preferences will be created within that folder the next time you launch Quark, and the other preferences will be ignored.
The first place Quark will look for prefs is within the application folder. If it doesn't find them there, it looks to the library. If they aren't there, it will create a new set in the library. The prefs in the library will work for the current user logged in at the time, so if you want different users to each have their own prefs, let them use the prefs in the library. Prefs in the application folder will take priority, so all users will use the same set if there are prefs in the application folder. Neither is better than the other, it just depends on how you want to work. If you are the only user on your Mac, it doesn't matter where the prefs are, or how you choose to replalce them.
Instead of making a prefs folder in the application folder, you could have moved or removed the one in the library, and the new set would have been created there. Making one in the application folder is what many people advise when dealing with issues that may be caused by bad preferences, because it's quick and easy, and if it doesn't solve the problem, they can be removed, and the old prefs are still in the library. Since your old prefs in the library seem to have been bad, I'd remove them, whether or not you choose to keep the new set in the application folder. You wouldn't want to go back to using them anyway.