Using folders is typically avoided because you waste time trying to decide where a particular file goes (categorizing it) and then what folder to look in when you need to find the note again. This is why Luhmann in part his analog note collection used an index.
But this isn’t a huge problem with a digital collection, especially within Obsidian, due to the universal search functionality. You also have the ability to easily link files between folders. I have experimented with both keeping my notes in distinct folders and keeping them all in a single folder. I haven’t 100% put my finger on why, but I prefer to use a collection of folders, typically being high level categories/fields of study that interest me. Than I have a generic folder labeled seedbox for any file that doesn’t easily fit in a folder. You could achieve the same objective through the use of tags but I instead use tags differently. Maybe that will change in the future.