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I think that the reason they did not simply implement folders, as on a pc, is because with the lack of screen real estate, you could not easily show the entire folder hierarchy, and people would end up down in a folder, then call CS complaining that most of their books had disappeared! There is certainly no room for much indentation, etc.
Although it does seem like there should be a way to have multiple levels in Collections.
Personally, I don't keep all that many books on the Kindle at one time (only 12 or 13 pages worth), not my whole library, so I've never really been interested in a heavy-duty organizational system. I just back everything up on my pc, in folders by author.
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