I use both the internal memory and a 1GB SD memory card in my reader (a PRS-505). I like to carry a large number of ebooks on my device, and the addition of an SD card gives me more than enough room for all of the ebooks I want to carry on my reader. It also gives me room for pictures and audio files when I want to carry them.
As far as how I organize my books, I divide them by genre and put each genre either completely on the memory card or entirely on the SD card. Due to their size, I also put music and pictures on my memory card.
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