You are correct. Each Firefox profile exists in its own folder and has its own set of data including cookies, history, passwords and so on.
There is also an addin for Firefox that attempts to simulate Chrome's multi-personality feature. However, I've found it to be rather limited and does not implement separate webdb's for example.
I do use Chrome's capabilities for multiple personalities but I cannot attest to it's security. Certainly it works well for maintaining multiple logins to the same service (e.g. Google and Microsoft Azure).