Playlists are tiny text files, you could have hundreds and take up a tiny bit of space.
Plus with hundreds of folders you would have to move and copy things...playlists just POINT to a song. So you could have 100 songs and create 50 different playlists with different songs and it would never take up much more space than the 100 songs.
Think of it like TV...300 different channels (playlists) on 1 cable box (folder) as opposed to one channel each on 300 different cable boxes.
Play around with playlists..Apple has created a lot of different ways to use them..check out things like Smart Playlists, select a certain artist with one click and a whole playlist is created of them from your library. There is also the iTunes DJ feature as well as Genius that figures out good playlists you would like.
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