Howdy nyc-seo,
This is a really good question with lots of implications. Although there's no single "right" answer, there are a few things you might want to consider:
- Subfolders are good for organizational purposes and as such can help structure your content. For example, SEOmoz puts all the blog content under seomoz.org/blog
- Subfolders can contain keywords that help with CTR and possibly with rankings. This may be good in certain situations, like in ecommerce. i.e. example.com/bird-feeders/hummingbirds
- That said, shorter domains tend to perform better in search results, and you want to avoid keyword stuffing in your URLs.
- Also, too many subfolders and you can run into some crawling issues. In these cases, it's best to keep your site architecture as "flat" as possible, without too many additional layers of sub-directories.
Some additional resources that may help:
- http://www.seomoz.org/blog/understanding-root-domains-subdomains-vs-subfolders-microsites
- http://www.seomoz.org/blog/site-architecture-for-seo
Hope this helps! Best of luck with your SEO.