Join Date: Dec 2009
Location: San Francisco Bay Area
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The file format may be best for your wants. Basically, you'll probably just do something like "movies" and "tv shows" XBMC will sort the out for you. Unless you want to keep some content separate because you don't want it in your main collection, you're most likely not going to do another folder. I do this for my mother's old movie collection that I have no interest in.
As for MKVs, as implied above, they can have compression. But using something like MakeMKV, it won't. It's just changing container to MKV, which is way it's MKV are smaller, but not by much. A 25GB blu ray may yield a 22GB MKV file. If you want smaller, then you're using something like Handbrake that will transcode to something smaller.