Yes, directories can be password protected. All files within that directory would require a password to access. The directory must exist under 'httpdocs' for you to be able to password protect it.
From the "Server Admin" control panel,
1. select 'DIRECTORIES', 2. click 'ADD', 3. type in the directory that you would like protected. 4. Header Text is what will show up in the password dialog box 5. 'New User', here you assign a username and password