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I find that folders work best when you use very little of them. I tend to couple Amazon/eBay/YouTube/etc as "Services" rather than folders named "Amazon", "Shopping", "Videos", and so on.
Right now I just have two folders on my iPod - "Photography" and "Games". Then I have all my most useful apps mixed in between them. I don't use them on the iPad at the moment.
The cons are when you overdo it and end up with folders for every category, and then ones for "Facebook", "Amazon", etc. You then have to remember where everything is.
The Pros is that they're isolated from other icons.
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