Depends on what version you are talking about. SPS 2003 and WSS don't have the
ability to set security  at the folder  level. SPS 2001 and the next release of
SPS/WSS (due in late 2006) have this ability.

Then how can I have a network share as part of a document  library.

In general, you wouldn't. All document  library content is stored in the SQL
Server instance along with the other data.

Say, I would need to, just because of WAN link restrictions. How would I do
it?

Assuming by link restrictions you're talking about bandwidth? If that's the
case, your only real choice would be to replicate the contents of the share into
a Document Library. You could do this with a simple file copy script using the
Web Client service to expose the doc lib as a UNC path.

There is a product out there called SecureDoc through which this is possible.
Item level  permissions for both documents and folders are possible in this and
there are other features too.Check Out their site
http://www.optimusbt.com/products_securedoc.htm.

Can you show me how it is done? Pretty new at this.

Assuming the web client service is running (by default in XP, needs to be
enabled and started in Server 2003) you can access the document  library via a
UNC path. For example:

http://server/sites/sitename/doclibname/

would be accessed as

\\server\sites\sitename\doclibname\

You can then just use your favorite scripting or programming language to copy
from the file share to the document library.