Which statement is correct?

The correct statement among the options provided is Option C: 1 millisec = 10 ^ -3 sec. This statement correctly defines the relationship between milliseconds and seconds, indicating that one millisecond is equal to one-thousandth of a second.

Option A, "Directories can be kept inside a file," is incorrect. Directories (folders) contain files and other directories but cannot themselves be stored inside a single file in typical file systems.
Option B, "Files cannot be kept inside a directory," is also incorrect. Files are typically stored within directories (folders) in file systems.

Therefore, the correct answer is Option C: 1 millisec = 10 ^ -3 sec.