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My solution is to rely on Calibre for organization utilizing tags as genres and allow my books to fall into multiple genres as appropriate and to have a bit more detail.
On my Kindle, I typically only have about 50 books (not sure why I even have that many), and I typically sort them into Non-Fiction, General Fiction, Classics, Short Stories, and Reading. Once a book is read, it is removed off the device, and I typically never read more than couple of items at once (e.g. a novel, a short story anthology, and perhaps something non-fiction).
The Calibre database, though, ends up drilling down to Historical Fiction, YA, Science Fiction, Fantasy, Horror, etc. with the tags. Calibre gives me the flexibility to organize everything I own while using only 50+/- on the Kindle lets me keep it basic. With Calibre, I don't worry about the files or folders as the Metadata is flexible and gives me multiple means of finding books, authors, tags, etc.
This isn't to say its perfect, but as mentioned, the Kindle will not work well until we can nest collections and do a bit more in terms of organization.
The added benefit with the Calibre set up is that my wife can manage her Kindle and draw from the same collection of books much like we do with our physical bookshelves in our home office.
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