Folders (also called Collections in Zotero) allow hierarchical organization of items into groups and subgroups. Folders are a great way of organizing the resources in your library according to the projects that you are working on.
To create a new folder, click the add folder icon 
and give it a name. To get items into your folder, just drag any item from your library into the folder. You can put an item into as many folders as you want.
To delete a folder, simply right click the folder and select 'Delete Collection'. Be careful when you do this because there is also an option to 'Delete Collection and Items in the Collection', which will not only delete the folder, but also all the items that were in the folder will be deleted from your library. Generally, it is best just to select 'Delete Collection'.
Tags allow for detailed characterization of an item. You can tag items based on anything you want – topics, authors, countries and so on. Items can have as many tags as you like, and you can filter your library to show items having a specific set of one or more tags.
To add a tag to an item in your library, click the ‘Tags’ tab in the item display, as shown below. Next, click the ‘Add’ button and type the tag name. As you type, you will be shown a list of tags that are already in your library. You can either select one of these tags, or create a new one.
To see all the tags that have been assigned to the items in your library, go to the Tag Selector at the bottom of the Left Pane.
To filter your library to see all records that have a specific tag, click on a tag in the tag selector, for example ‘Administrative agencies', as shown above. To undo the filter, click once more on the tag. This will return you to your full library.
To search for tags, use the search bar at the bottom of the tag selector, as shown below.
Want to learn more about organizing your Zotero library? Check out these resources: