The folding towels represent what can happen to rock layers over time near fault lines!
As simple as this experiment is, it is a good way to see how the movement of tectonic plates form hills, valleys, mountains and volcanoes. On the towels, you should see several hills and valleys in their folds after pushing them together. These folded areas represent the same bending and folding that occurs in our landscape due to pressures from the earth moving deep underground.

Deep underground the Earth’s crust is made up of tectonic plates that float on a sea of magma. The area where these tectonic plates meet are called faults. When these tectonic plates rub against one another in the fault the huge amount of force produced can bend the landscape into folds similar to your towels. When the force is too great, earthquakes can occur when the tectonic plates slip past each other or one of them passes under the other. Over time these forces can build huge mountain ranges along the entire length of continents (for example the Sierra Nevada ranges or the Himalayas).