Sections in a folder structure are seen by search engines as part of one site, so the more subsections you have, the more content your site appears to have. And we all know how much search engines just love a site that is rich in content. Folders allow you to build your siteís
bulk with each new section addition. Also, the Page Rank in each section will be distributed throughout your whole site ó provided you have a sound internal linking structure.
Search engines see subdomain as completely different sites. Therefore, any links between sub domains will hold greater perceived weighting because they will be seen as external rather than internal links within the site. This presupposes that each of your other sub domains.
so which one is better?
If you have loads of content and good branding reasons for treating each section as a separate entity, then sub domains may be the best way to go. However, there is a lot more work involved if and when you decide to add a new section ó itís not as simple as adding another folder.