Yes, that's a good definition. But remember, for the purposes of the Grammys, the NARAS people make the definitions, and they are not necessarily the same definitions that we might choose. Certainly their definition of what constitutes "folk" is very different from that of an academic folklorist, for example.

Also, if you look at the Grammy categories, you will see that there are separate categories for certain genres of traditional music, such as Blues, Cajun & Zydeco, Native American, and Hawaiian. The "Traditional Folk" category is meant to cover those kinds of traditional musics that fall between the tracks -- for example, the bluegrass category people won't accept old-time music, so that would go into "traditional folk". There's no "Celtic" category, so records of traditional Irish music go into "traditional folk".

It's not a hard and fast rule, because if there's cross-cultural stuff (say an Irish fiddler records an album with an Indian sitar player) it goes into "World" music (which I think of as "Whirled" music).

If you care about the Grammys recognizing actual traditional folk music, it's important that there be more submissions in this category. Otherwise, it will disappear. This won't make much difference to the survival of traditional music, that's for sure, but I think it helps the musicians if they get this kind of recognition.
Suzy