Dim not DAM
I knew this would happen. One day John Nack links to a misguided extract “Setting up an organizational system in Lightroom” from Rob Sheppard's fine book on Lightroom (apart from anything else, I'm glad to see it has Windows screenshots). A day or two later and it's popping up in an O'Reilly blog post to advocate the same silly advice - using your folder structure to categorize your images. Cue a predictable Beardsworth rant….
So what happens when a photo fits two categories? Do you put one copy in each folder? Or add more subfolders? Or say a country gains independence, as one has this weekend, or a location changes name, officially or because you got the place name wrong and those shots were actually taken over the state line? Go back and update your folder names, or just rely on memory that Bombay was Mumbai, or remember some Utah trip shots were taken over in Arizona? Or let's say you discover that some of those green necked parrots were actually of a particular species, while other shots showed a subspecies. A critical point for parrot lovers, no doubt. Add new subfolders and move the pictures? How many times and in how many locations did you photograph them? So how many subfolders does that mean updating? And what if you decide those shots were really landscapes rather than of birdies? I know I'm putting this forcefully, but these changes of how you see and find images do happen, and often.
Folders should be set up only to make the best use of storage space, to look after the physical security of your work, make sure you don't lose or duplicate anything, and to make it easy to restore after a crash or migrate (a nightmare when you have meaningful hierarchies). You have keywords and other metadata for finding images. Spend time adding those, not on too clever folder structures. Folder-based organization is dim not DAM.