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A moddir (mod directory) is just a usual folder like any other folder. It allows mods to be ran, even though the vanilla files are still left (not overwritten). This allows for many mods installed at the same time, as well as ability to play vanilla, all within the same EU2 main folder.

The moddir for AGCEEP, for example, would be called "AGCEEP" and located in the main EU2 directory. To be able to use this mod through the moddir method, you will have to mix a little with your shortcut. This is the line from one of my own shortcuts:
Code:
"C:\Spel\EU2 Vanilla\EU2.exe" C:\Spel\eu2 vanilla\AGCEEP_156
The first part (within ") is the usual target of the eu2.exe file. Next to it is linked the moddir. This means that the game will use files named equally to the vanilla files over the vanilla files, if those are in the same place within the moddir. For example my AGCEEP shield for sweden, located in "C:\Spel\eu2 vanilla\AGCEEP_156\GFX\Map\Shields\Shield_SWE.bmp" would get precedence over the vanilla shield in "C:\Spel\EU2 Vanilla\GFX\Map\Shields\Shield_SWE.bmp".

Many mods are installed with a moddir already made (AGCEEP, WatK and WatKAbAoI etc), so you will not have to worry so much.
 
Example of two moddirs in a filetree of Eu2:
Code:
Program Files
 |- ...
 L- Europa Universalis 2
     |- Eu2.exe
     |- AI
     |- AVI
     |- DB
     |- Config
     |- ...
     |
     |- Mod_No1      <- this is moddir
     |   |- AI
     |   |- DB
     |   |- Scenarios
     |   L- ...
     |
     L- Mod_No2      <- this is another moddir
         |- AI
         |- DB
         |- Scenarios
         L- ...

EDIT:
When you launch a mod that is placed in a moddir, almost any file located in such moddir is then loaded instead of the original file.
Till here it seems to be perfect, except of the "almost" any file.

Files that aren't supported by the standard moddir functionality are for example:
- map files
- music files
- video files
- credits file
- ...
When some mod had a modified map, it couldn't be used in moddir, but its modified map had to rewrite the original map files.

There are ways how to handle this missing support for maps, from manual backuping, through batch files doing it for you, to Mod Launcher.
 
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