If the parent's folder limit access to a certain user or group there aren't security problems and may be exactly what you need.

for example, if you work with other people and you have a command to generate thumbnails from the shell, you may have a layout like this one

    chmod  user      group  path
    2770   www-data  devs   /srv/www
    2777   foo       devs   /srv/www/site/thumbnails/

/srv/www/site/thumbnails may be accessed only by people in the 'devs' or 'www-data' group ('foo' can read it only if he's in the group 'devs'). The obvious alternative would be to set that directory as owned by 'www-data', but you need root access to do that (unless you put everybody in group 'www-data', but then everyone can access every site). This way every user in the group 'devs' can make directories usable by both his teammates and the webserver, without having root power or being in group www-data. Have more than one team? Use different groups for each team.

0777 (or more like 02777) is a perfectly valid permission for world-writeable directories. Except that the case "anyone may do anything here, this is a free and unrestricted file sharing area" is quite rare. And almost certainly not for anything under /var/www served by httpd with PHP support.

> There's never an excuse for chmod'ing something 777

Agreed. Biblical implications aside, chmod 666 and chmod 777 are rarely a good idea.

(http://www.gotothings.com/linux/permissions-with-the-chmod-c...)