I see. I am not sure why EN would choose to confuse these two well known concepts in this way. For example, here is my folder structure:
I'm sorry I can't show more to show the logic, but essentially clients are broken in countries/states/sites/projects, but clearly with the hierarchical folder limitation, this isn't possible.
My Tag structure is simple as you can see from this sample:
I could possibly replicate my folder structure in Tags, but why have folders? It makes no sense.
As I say, these two concepts can work harmoniously, however, for reasons unknown, EN has elected to dumb down one and has promoted the bastardisation of the other to compensate. I can imagine why this has happened, but unfortunately, it is ultimately counter-productive to an awesome tool.
People will go elsewhere...when this one change would have a huge impact on usability and acceptance. Trust me, I know how popular it is, and I know so many people who start and stop. There should be no reason to stop, but it is taking licence like this that drives people to it I'm afraid.