Moddir

From EU2Wiki

Moddir is a function of EU2 since version 1.05. It allows you to specify a certain directory to start EU2 in. This is almost only used by mods.

This does not mean that the normal EU2 directory is not used, it just means that when EU2 search for files to be used in a game, it first search in the mods directory and then in the normal directory, the latter just as when playing the original EU2.

Running without moddir

When You are running "plain vanilla" EU2, You have it installed in (maybe) directory C:\Games\Europa Universalis II\.
(And the program: C:\Games\Europa Universalis II\EU2.EXE.)
Files like province.csv can be found in C:\Games\Europa Universalis II\DB\province.csv, the scenario files is found in C:\Games\Europa Universalis II\Scenarios , etc.
The shortcut at Your desktop contains:
C:\Games\Europa Universalis II\EU2.EXE.

Running with moddir

When playing a mod and therefore using the function of moddir, e g for the mod AGCEEP, You have all files belonging to AGCEEP placed like in this example:
C:\Games\Europa Universalis II\AGCEEP\DB\province.csv , and
C:\Games\Europa Universalis II\AGCEEP\Scenarios\ , etc.

And the shortcut (for AGCEEP) at Your desktop contains:
C:\Games\Europa Universalis II\EU2.EXE C:\Games\Europa Universalis II\AGCEEP.
EU2.EXE search in this case first the AGCEEP directory for all of the game files, and if a file is not found, loads the file from the normal main directory and it's original folders.
(Normally You could also just have the name of the mod folder in the shortcut, and skip the path:
C:\Games\Europa Universalis II\EU2.EXE AGCEEP .)