I can list the contents of a directory that isn't packed into rgss3a archive, but what if I took the directory and decided to pack it in one.
How should I change my directory-reading function so that I can still read the data and work with it?

You just make a copy of the games folder and encrypt it.

Not sure what you mean. Making a copy of it would be duplicating the amount of space required.

For example if I want to read all of the files in the Picture folder I would just go to Graphics/Picture and iterate over all files.