If you've designated a Tool Folder, Sketchpad checks that Tool Folder when it starts up, and puts every tool in the folder into the Custom Tools menu. (When you first install Sketchpad, there is no Tool Folder until you designate one by using the Choose Tool Folder command from the Custom Tools menu menu.)
There are several possible ways in which students might use the Tool Folder.
Students create and use their own tools: In this scenario, the Tool Folder must be in a location, either on the local computer or on the network, where students have permission to save and modify documents. For instance, on a network students might use the Choose Tool Folder command to designate their own Tool Folders within their personal Documents folders on the network. Though the location of this folder may vary depending on network configuration, a common location on the local hard drive is ~\My Documents\Sketchpad\Tool Folder (in Windows) or Documents | Sketchpad | Tool Folder (on Mac).
All students use the same tools: In this scenario, all students should have access to the same set of tools, located in the same Tool Folder. (For instance, you might have a group of geometry tools, or algebra tools, or calculus tools you want your students to use.) In this case, you can store the desired group of tools in a folder that's marked as read-only, or in a location on the network where you can save documents but students cannot. Using such a location prevents students from modifying the tools, or saving new tools, by mistake.
Using a shortcut to set the Tool Folder on launch: In Microsoft Windows, you can create a shortcut that students use to launch Sketchpad, and use a command-line flag in conjunction with the shortcut to change the location of the Tool Folder. You can create multiple shortcuts with different command-line flags, so that each shortcut launches Sketchpad using a different Tool Folder.