Steel bikes are painted to prevent rust. They typically have a drain hole in the bottom bracket too, so that any water which gets in the frame can get out (note that the bottom bracket may not be the lowest point on a folder). As long as the paint stays in place and the frame has a drain or is sealed closed rust is not a major issue.
It takes quite a while for 4130 (the steel used for most bicycles) to rust enough to cause a problem. I build bicycle racks and mostly ride with racks that are unfinished/unpainted. It takes a month of regular riding in the rain to have visible rust. I had a mountain bike that was missing a 2" by 1" oval of paint on the top tube and which would be parked outside. I live in Seattle where there is constant dampness for about 8 months of the year. That bike never got more than a very thin surface of rust on the top tube in the 5 or 6 years that I owned it. If you add salt to the equation (storing a bicycle next to the ocean or in a boat) then the story changes somewhat because the salt accelerates the rusting process.
Steel has nice advantages. It is stiffer and stronger for a give tubing diameter than aluminum or titanium. It is easier to weld or braze. It has nice fatigue characteristics and doesn't fail suddenly. It can be repaired.
alex