The specified working folder does not exist. This error has the following cause and solution:
Reset the working folder for this project (using the Set Working Folder command on the File menu), or click Yes to create the folder. This tells VSS that this is the local working folder. When you open the project again, VSS automatically goes to this working folder.
If your working folder seems fine, check to see if this project is shadowed to another location, and that your connection to that location is still OK.