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Just to extend the useful info given above, you could also use Calibre as your library manager. It's a breeze to define and apply tags to titles in Calibre. These tags are then used to define collections on the Sony reader.
One very annoying quirk I have come across if you have collections (say 'Science Fiction') which reference titles stored in main memory and titles stored on an SD card, the reader creates *two* (potentially three) identically named collections with just an icon to indicate one is on the SD card.
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