^ Good tips
As mentioned there are a few Kindle collection managers - I have not used them all, but rely on this one:
http://www.colegate.net/KindleCollectionManager/
Still in dev, but works very well. A bit more elegant than the Kranf one IMO because there is no need to copy any executables over to the Kindle to use it - its a small app you run on your PC.
Maybe this will give you some ideas:
I currently have 10 Collection categories on my K3 Wifi that I created using the above. Because I named my Collection categories using a "_" at the start of the collection name, my K3 main/home page simply shows my all 10 of my Collection Categories, with the rest of my books listed afterwards. I feel this keeps things very neat and the way I like it.
e.g.
__Currently Reading
_ Archived
_Fantasy
_Horror
etc, etc, etc,...
I created my collections using the app above while K3 connected to PC. Then simply RESTARTED the device as mentioned by slkissinger. Once restarted, I click on a collection name, hit MENU and then ADD/DELETE books for that collection.
Easy peasy.
You can also send books to specific collections from within the app, but it does not always work. Yes, this would be faster done on PC, but the app is still under dev like I said and it works quite nicely for now, at least for me.
Many folks like the Kranf one and also others use the calibre plugin - I intend to try them both myself at some point just to compare.
cheers and good luck!
-les