@Rickkins:
You can't get a more authoritative answer than one from the author (see above).
Ans: Yes.
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KOreader does not replace the Kindle's native reader, so if you want both to be directed by your directory structure, then:
For KOreader (not software collections aware) - no action required, it just does it.
For Kindle's native reader (which is software collections aware) - run LibrarianSync (from its KUAL menu entry) whenever the directory structure and/or contents under Kindle:/documents changes.
Note: The Kindle's native reader lost its ability to handle nested collections when it gained the "Amazon cloud collections" feature.