what is the EPTEMP folder which is created during energy plus simulation ?

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Yes, this is normal, it just contains all the files that will end up in your run directory when all is said and done.

The EPTEMP directory has everything named generically, so I assume it exists so that multiple runs from the same directory can occur while still using generic names (which I assume that the EPlus engine wants), like in.idf and eplusout.err

After the run all these files are uniquely named (based on the original idf file name) and saved into the original working directory.

There are a lot of assumptions here, so perhaps some one more familiar with the inner workings of EnergyPlus can chime in.