The better he/she sings, the more he/she will be liked or appreciated. Ditto for how well he/she expresses the song. Above all, much depends on the singer's role:

a) Strictly speaking, nobody HAS to sing well. My neighbour can't hold a tune to save his life, but I find it heartening to hear him hum while tinkering in the garden. Just for wanting to sing, he gets a medal in my book, though in his case the medal is made of tin!

b) As a floorsinger in a folk club/singaround, much will depend on the tolerance of the audience/club members. At the Herga club, for example, despite its being blessed with some of the finest solo voices in the UK (Johnny, Kitty, Graeme), nobody would bat an eyelid if a floorsinger had a poor voice; there would be no sniggering or even talk behind their backs later. That's because of the ethos of the club: everyone gets a fair go, everyone is appreciated for trying, though the better ones get more appreciated, of course, and might get an extra go. Other clubs may not be so forgiving, especially those that charge more than others - because with the charge comes an expectation of quality. So, judge your audience first, if you can.

c) A professional or semi-pro folksinger has to have higher standards of course; after all he/she is getting paid to entertain, and the expectation of quality is understandably even higher. Market rules apply - the worse ones will get fewer/no bookings.

In fact, in all of the above, you could strike the word "folk", and the statements would still apply. At professional level, folk music has to have the same standards as any other kind of music. It's just that the concepts of singarounds and participation in the folk world have no equivalent nowadays in other genres, for a decent comparison.