Better way of organizing documents - Folders or Metadata?

One common question among SharePoint users is - How to organize documents in a SharePoint Document Library? Some go with folders, others like to tag their documents with metadata.

End of the day, it should be simpler to add/manage/search documents.

Both the approaches have pros and cons...  Below I have listed down few pointers on when to use folders and when to use metadata.

Common Activities	Folders	Metadata
Security	Provides option to restrict or manage access at folder level	None.
Navigation	1.       Folders may look a neater approach, with the URL showing the folder name. 2.       But as the no. of folders increase, it becomes difficult to find documents that are in the Nth level of the hierarchy 3.       There is a limitation of 260 characters for the length of the folder path in total	1)       Metadata can be used to create views which display a subset of information based on the filter criteria. 2)       SP 2010’s Managed Metadata service allows metadata based navigation which gives navigating to documents a new experience
Url	Folder names form portions of the Url of the SharePoint resources the folders contain.	None.
Search	Basic search on the folder names	Metadata is indexed by SharePoint search and will return results based on keyword searches. SP 2010 search based on Managed Metadata helps is obtaining results with better relevancy.
Sorting	None.	Metadata can be used to control the order in which items are displayed in list views.
Filtering	List views can be configured to show only the list items contained within a folder and its sub folders.	Metadata can be used to control which items are displayed in list views.
Grouping	None.	Metadata can be used to group list items together in list views. List views limit grouping to two hierarchical levels.

As you can see above, both have some advantages and disadvantages.

[More details coming soon]