The iphone will automatically organize your music for you. The buttons on the bottom of the phone in the ipod allow you to search by artists, album or all songs.
I have all of my music just in the main music library in itunes, nothing is sorted, except for a few playlists that I have like 80s, 90s, night music, christmas music, etc.
Just make sure that all of your songs have the pertinent information on them under the Get Info window like Album name, artist, etc. and when you sync your music onto the phone, it will organize it all for you. No need for any folders.