I do it generally by author. However, in some cases it is author/series.
For instance I have a whole slew of David Weber books, but I also have a couple of books in a series that David Weber cowrote with another author (Steve White), which the other author (Steve White) cowrote the last two books in the series, but not with David Weber. Since I don't have any other books by Steve White, I just shelve the two books at the end of the series with David Weber, as that is how I think of the books as belonging (Sorry Steve, you are good author an old, but that is how the chips fell).
Same thing with some other author's stuff. However, with every other instance I have multiple other books by an author, so they have their own shelf as well. Example I have a shelf of David Drake stuff, but he cowrote a bunch of stuff with Eric Flint, so that cowritten stuff is included with David Drake, but it is also on Eric Flint's shelf too.
I don't have any shelves, 11 total with about 130 odd books between them. I have probably another 20 books currently on my Nook which aren't shelved as it is odds and sods from other authors (A Heinlien book here, an Orson Scott Card book there, etc). With the exception of Tolkien, I don't have any shelves with less than 7 books in it. Calibre generally keeps the folders straight in main memory/SD card for easier access.
At some point I'll load up most of the rest of my library from Calibre, which would be maybe another 100 books which would involve another 2 shelves and about 50 or so extra books not sitting on shelves. Since most of my books (not on shelves) are either Sci Fi or Fantasy (95%) it doesn't make a lot of sense trying to organize it beyond misc, which goes on to a micro SD card, which would mean losing the shelf with a reboot of the Nook, so I am not even bothering with the other stuff.