Popular opinion on the internet suggests that the Tags and Folders based methods for picture organization are mutually exclusive. This means that if you decide to use Tags then you will not be using folders. Or if you’re using Folders to organize your picture, you cannot use Tags. This is very far from reality and in fact Tags and Folders are NOT mutually exclusive.
The reality is that even if you’re using Tags, you will be using Folders by default ! You have to have some folders where you’ll be transferring your pictures. Even if you put all your pictures into one folder you’re still using folders as your basis. The folders system is the basis of any computer operating system and every software (even picture tagging software) will be using the folder system on your computer.
The reality is that any Tags you’re using are based on an underlying folder structure that you’re creating when you’re transferring your pictures from your digital camera. Granted, tagging will allow you not to pay attention to the names of your folders, but you’re still using folders even if you’re using tags.
Now, that being said…I strongly maintain that even if you’re using tags you should be creating a consistently named folder structure as the foundation on which to create your tags. Without a strong folder structure your tags will not be very useful in the long run.