Does ZenPhoto have the ability to generate albums out of my pre-existing folder structure?

How do people normally import their entire archive?

Since Zenphoto is file system based you can upload (using FTP) your entire directory/folder structure into the albums folder of your installation.
Every directory/folder will be an "album" (as it's called in Zenphoto)

Yes, absolutely, that's even the base functionality of the gallery.

I'm assuming that will create a copy of everything I upload into ZenPhoto's private repository / folder - I'm looking to point it to an existing folder structure local to the system with ZenPhoto installed.

Well, if you copy it to the /albumfolder that will copy it. But you can set another folder (or rename it) within the config file in /zp-data/zenphoto.cfg.php. It must be on the same server though and if you choose to put it outside the webroot some multimedia files especially if in Flash mode will not work.

Forgot to add that symlinks may also be a way if your server supports them.