Personally, I minimize the number of folders. I don't see much reason to have folders for subassemblies. It seems to me that SolidWorks is happier when it doesn't have to search through too many folders to find what it is looking for. There also seems to be less possibilities for me to put things in the wrong place. It seems like a lot of people work with just one folder per project, perhaps with folders for common parts and the like. I have heard that some people have problems when folders get too large, with thousands of files.
Whether to use a subassembly or a display state depends upon what the subassembly is used for. If you use it to create a BOM and/or a drawing, then it seems like a good idea to keep it. If it helps in organizing and understanding the assembly, then I would keep it. If it makes your assembly rebuild quicker because you don't have so many top-level mates, then I would keep it.