So, in the Ghosts of Saltmarsh adventure book, it gives more in depth information on sea adventuring and ship information. I am running a campaign and my players are located on a large salt water lake (think Lake Erie/Ontario size) that is attached to the sea through an inlet that allows larger sea vessels access to the lake.

They have just recently got access to a folding boat. My question is whether the folding boat can really be thought of as a seaworthy vessel. It folds out to a 24 ft. long boat with a single sail and 5 rows of oars. In the Ghosts of Saltmarsh supplement, the smallest "sailing ship" they note is the Keelboat, which is more than twice the size of the folding boat's largest size (60ft vs 24 ft).

This makes me think that the folding boat would not be seaworthy. And possibly not even good to take too far from shore on the lake if the weather is particularly bad.

As the DM, should I rule that the folding boat will be fine for travel on the lake but that, if they want to go out to sea, they should either charter or even purchase a larger vessel?

The description implies it's safe to use

The description says nothing of how sea-worthy it is in terms of bluewater sailing, so it ultimately comes down to your decision. But the fact that there are two options of boat styles suggests different uses.

Boat 1

The Folding Boat is not a big vessel.

One command word causes the box to unfold into a boat 10 feet long, 4 feet wide, and 2 feet deep. The boat has one pair of oars, an anchor, a mast, and a lateen sail. The boat can hold up to four Medium creatures comfortably.

This is a pretty small boat with a very shallow draft. Combining those factors along with the lateen sail suggests that it's made for staying closer to shore. Lateens are best used in that situation where you're not sailing with the wind directly behind and prefer the maneuverability that it provides.

Boat 2

The second command word causes the box to unfold into a ship 24 feet long, 8 feet wide, and 6 feet deep. The ship has a deck, rowing seats, five sets of oars, a steering oar, an anchor, a deck cabin, and a mast with a square sail. The ship can hold fifteen Medium creatures comfortably.

This is a larger boat, and in modern days there are deepwater open ocean vessels that are about this size. Combining that the ship has a deck and utilizes a square sail suggest that this is possible for open ocean sailing.

How storm-worthy it is up to you

However, Boat 2 is still fairly small. It's going to be slower than other deepwater, open ocean vessels and there may be issues if they run afoul of inclement weather.

Who is sailing it?

The bigger issue here may not be in what type of boat, but in who is proficient in it's use. If your players have that (or can hire), then I think it's fine to give them the opportunity to use it. It doesn't have a lot of other uses :)

While not 5th edition, there was a 3.5e sourcebook called Stormwrack that described nautical craft, seaworthiness, etc. While it is described in greater detail in the book, the site Realms Helps distills it down further, and indicates that it would be enough for seafaring.

The relevant portions are that each ship is assessed a "seaworthiness" check statistic, defined as:

Seaworthiness: The ship's overall sturdiness. This modifier is applied to any Profession (sailor) checks the captain or master makes in order to avoid foundering, sinking, and hazards that large, well-built vessels avoid more easily than small and frail ones.

And a complement assessment, defined as:

Complement: The first number in this entry is the ship's complement, or the total number of Small or Medium humanoids that can normally be carried on board as crew and passengers. The second number is the ship's watch requirement, or the minimum number of people necessary to control the ship without penalty. The third number, when present, indicates the number of rowers required in addition to the normal watch; a ship doesn't need rowers to sail, but does need rowers to use its oared movement rate.

Given that the larger ship size of the folding boat has a complement of 15, about the closest on that chart would be a pinnace, with a complement of 15/3/8.

Pinnace

The pinnace is a small, two-masted sailing vessel. It's sturdy enough to undertake long open-water voyages and handy enough to use close to shore. A pinnace is fully decked, but its sterncastle is hardly worthy of the name; it's little more than a cramped cabin.

Pinnace: Gargantuan vehicle; Seaworthiness +2; Shiphandling +2; Speed wind x 30 ft. or oars 5 ft. (good); Overall AC 1; Hull sections 4 (sink 1 section); Section hp 50 (hardness 5); Section AC 3; Rigging Sections 2; Rigging hp 60 (hardness 0), AC 1; Ram 3d6; Mounts 2 light; Space 30 ft. by 10 ft.; Height 10 ft. (draft 5 ft.); Complement 15; Watch 3 plus 8 rowers; Cargo 30 tons (Speed wind x 20 ft. if 15 tons or more); Cost 4,500 gp.

*note: Boating links are to external commercial sites. I am not suggesting you buy a boat or buy a boat from them, they are only provided as examples.

24 feet is plenty large for a sea-faring vessel.

In the real world, most privately owned boats (notably including deep sea fishing vessels) are ~30ft or less. A 60ft boat is more likely to be used for something closer to a navy/marine squadron. Your party, depending on size, may have trouble getting comfortable on such a small boat, and they probably don't want to travel trans-ocean, but it would certainly be enough to brave the coastal waters.

Granted, a better comparison would be an aluminum boat, but they are also generally seaworthy. A storm could scuttle them quickly, but general large lake/ocean conditions are 4 ft waves or less.

In the RPG world, it is implied that the Folding Boat works... as a boat. Boats are generally used on medium-large lakes at the least, frequently in oceans. Smaller applications such as rivers and small lakes would generally call for a much smaller craft, such as a canoe or raft.

The magic item doesn't make any claims to seaworthiness, but doesn't deny it either. While it's small for a seagoing vessel, it's not outside the realm of possibility, and it's also a magic item. It would be pretty easy to argue either direction, so as DM you can justifiably make whichever ruling is more beneficial to the story you want to tell, invoking "it's more stable than it should be because magic" if necessary.

Personally, I would allow them to safely use a folding boat on a large saltwater lake. Just from a player-having-fun perspective, it seems cruel to give them a magic item with one use and then say "but you can't use it here, in the place where it would be most obviously beneficial".

For what it's worth, the Folding Boat is based on Skithblathnir of Norse mythology. Skithblathnir was a folding ship that was one of the wonderous objects presented in the same contest that got Thor his famous hammer, Mjolnir. Skithblathnir was definitely a seagoing vessel, if that has any influence on your decision-making. On the other hand Skithblathnir was much larger than 24 feet; it was indirectly stated to be the second-largest vessel in all the worlds, second only to Naglfar, the ship of the dead. (This is in a culture, of course, where a 100-foot longboat was considered very large, so "the biggest" is still not going to be anything like an Age of Sail vessel.)