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User needs to access the folder and files inside the folder directly using URL provided them via mail. Permissions of document library is inherited from site but broken at Folder level. User does not have permission to site or document library.

So now user is getting access denied message while accessing the document or folder using URL(user has read only permission for the folder and document).

Please help with proper explanation, why user is not able to access the site?

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The user will need at a minimum read permissions to the library. If they go into the library, they will only see the folder they have permissions to.

If you want them to be able to edit files, then you'll need to give them read access to the site. What exactly is being called by the client applications (Word, Excel) I don't know, but in testing super locked down, NSA level over blown security like you are describing, you will have errors without read access at a site level.

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