You might want to read http://manual.calibre-ebook.com/gui.html#tag-browser
, although it seems as if you have already read the second.
Using calibre terminology, genre is a 'category' that contains 'hierarchical items' (sub-genres). Sub-categorization affects how categories are displayed in the tag browser. It does not affect the display of hierarchical items.
Selecting 'by first letter' or 'partition' will create openable sub-categories within the tag browser. This is solely for convenience of organizing and viewing within the tag browser. It does not create or change hierarchies. 'First letter' creates a sub-category for each first letter. Partition creates a sub-category for a number of books.
Which of partition or first letter you use depends on what is more convenient for you, how you think, and how you search. Partition gives you a controllable number of sub-categories containing a fixed number of books, which can be easier to navigate because they (can) take up fixed amounts of screen space. First letter gives you as many categories as there are first letters (not always 26), with each subcategory potentially very large because names do not fall evenly across the alphabet. For example, you have 2175 authors. If you use first letter, you will have between 1 and several hundred authors per letter. If you use partition and set the category size to 100, then you will have 20 subcategories with 100 authors in them, and one (the last one) with 75 authors in it.
The best thing to do is try them to see which you like. The choice is completely non-destructive.