Wood foundations consist of load-bearing walls framed with two-inch nominal lumber and sheathed with treated plywood. The walls are designed to withstand backfill and vertical loading. They are supported laterally at the top by the floor system, and at the base by backfill and foundation footing of crushed stone or gravel. The footing distributes the vertical load from the structure to the soil. If detailed and waterproofed correctly, a wooden foundation will break with your logic and actually hold back the earth and water.
Answer excerpted from Eric Corey Freed's column, Ask the Green Architect on greenerbuildings.com.
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