This does not apply for version 7 and later. This only applies for version 6 and earlier.
A 'DeletedFiles' folder can exist for each of your VM's. This folder is only utilised whenever a file pertaining to a VM is moved or removed completely from the VM's configuration and has past its retention period.
Basically the idea behind this file is to keep a single very last version of the virtual disk and has been designed as a 'last saving grace' version of the virtual disk file that has been removed from the VM's configuration.
The files that are placed into this folder are not affected by the retention policy and if you are confident that you no longer require the contents of this folder, you can safely remove this folder from Windows Explorer without affecting Altaro VM Backup.
Please note that this does not apply to files/folders within the guest VM, but only applies to files pertaining to a VM.