
Explanation

EFS works by encrypting a file with a bulk symmetric key. The symmetric key that is used to encrypt the file is then encrypted with a public key that is associated with the user who encrypted the file. Because the encryption & decryption operations are performed at a layer below NTFS, it is transparent to the user and all their applications.
Box 1: User1, User2, and Administrator
Box 2: User1, User2, and Administrator
All three are members of the Users group that has Full control permissions to Folder1, Folder2, and Folder3.