If you want my personal opinion, I believe that hanging folders are clumsy and inefficient. They're the equivalent of informational black holes--or, if you prefer, stagnant pools. Most people don't take hanging folders out of a drawer and carry them to a meeting. Rather, they pull out a manilla folder within the hanging folder--the manilla folder being difficult to find because it's label is swallowed up by the monster hanging folder. But then why the hanging folder in the first place? And don't even get me started on those impossible little plastic label tabs...

If you want a more dispassionate analysis, here it is:

Hanging folders lend themselves to organization by category. You create a hanging folder called "bills" and then dump your bills into it when they arrive. Good for home filing systems (e.g., payroll, taxes, medical, telephone, etc.).

But hanging folders are too expensive and inefficient to use for a robust alphabetical system. It's simply too much work to create a new hanging folder for each subject/item/project. Hanging folders require you to think of categories before you begin filing--this is fairly inflexible. You could use a hanging folder for each letter of the alphabet. But again, visibility is a problem, and pretty soon certain folders get too full, while others remain empty.

Manilla folders + labeller make it exceptionally easy to add new items/projects to your files as they come in. The result is a clean, alphabetical index of all your files--easy to glance through, easy to purge, easy to expand. No more sloppy catch-all folders. Everything is contained within a discrete, clearly-labelled file. The system expands and contracts organically to fit your current needs and activities.