How do you sort yours....?
This year my KK3 will be 3 years old (actually I had a replacement a couple of years ago, so ... )
anyway
Over the years I had amassed a fair amount of books, and I did try to sort them out into collections, etc.
Then I had the brainwave of a 'READ' collection which gained over 100 books in the time it was there. So I had READ, various author named, cookery, animal etc folders and about 200 'loose' books to sort, plus a 'not yet moved to Kindle' folder on my PC which had books not yet on theKindle in it .
It used to get on my pip a bit when I finished one book then had all those clumsy folders with loads of books in them, not remembering what I had, couldn't tell at a glance, what to read next blah blah
So I hit on the idea of wiping my Kindle back to empty, just upload a handful or so books onto it and delete them once read, after all they are never really gone as I still have them on Amazon or PC, and since ebooks I haven't had to re-read a book through lack of reading material.
I've also slowed the downloading of new books, because I sort of realised that most of the books dl'd on impulse would probably never get read if I DL 500 more in the meantime 
So the point of all that blurb is... I stopped trying to sort immense amounts of reading material, simplified the collection (just bung on a few at a time) and clear up after myself when finished (delete).
Much prefer the minimalistic approach.
Source:
http://www.kuforum.co.uk/kindleusersforum/thread-13234.html