As one who organize things in folders, I agree with Zef that is mostly a mind construct (plus I saw the “downsides” yesterday) .
Altough, I would argue that sometimes if I edit files with other editors it is easier to know where the file is an a folder-based structure, especially if I don’t remember the name. I used to leverage a lot the auto-note mover plugin in Obsidian for the same reason, but that ended up sometimes with duplicates. I personally see this feature more as an official plug maybe?