HOW TO USE KINDLE COLLECTIONS This is a folders-like feature available for Kindle 2's, DX's and Kindle 3's (UK: K3's), implemented with 'tags' or category-labels (as seen with Google's GMail).
I'm placing here, into one blog entry, some excerpts from some earlier pieces on Collections and may modify it over the next week or two.
COLLECTIONS - BASICS
Modified from steps given us by Marc Miwords
. From Home, click on "Menu"
. Go to "Add New Collection"
. Name the Collection. Repeat as wanted *
. Go to your listing of books or documents on the Home screen
. On each title, push the 5 way controller to the right
. From that menu, click "Add To Collection"
. Using the 5 way Controller, scroll to a Collection label that you want to use for that particular book
. Click the 5 way controller
. One click ADDs it, another click REMOVES it -- from the collection but not from your device. If you want to add a book to several collections, go down the Collections listing (alphabetized for the Add-Book-to-Collection process) until you see another Collection that should include the book and click on the Collection label to add the book. Repeat as wanted.
. Press Back button to get back to where you were in the Home screen books-listing.
. Repeat until you have all of your books in collections.ALTERNATIVE Collections-creation method
* NOTE: You can, instead, create a Collection, name it, and THEN choose to
ADD books to it, and you will be taken to your book collection on the Kindle Home screen and you can mark the books that are to be added to the collection.A book can be added to many collections. '
INTRO AND GUIDE - Main portion
The Kindle Collections feature was added with Kindle 2 and DX software version v2.5x and is a feature of the newer Kindle 3 Basic answers to most questions on this feature are in the online documentation.
So I've linked to the Amazon help pages that describe how this new feature works.
ALPHABETIZING KINDLE COLLECTIONS FOR THE HOME SCREEN
Amazon did not, for some reason, choose to show us our Collections-set in alphabetical order. It's as if they expected that anyone browsing a library shelf would prefer to see the book titles in the order they were last accessed by us rather than in alpha order.
So this is an introductory workaround for that.
The Home screen image starting this section is of my Kindle screen after I applied a workaround recommended by knowledgeable Kindle users from Kindleboards, including luvmy4BRATs who led an Amazon Kindle forum discussion on this, with some great ideas added by other ultra-creative people in those Amazon forums, ideas and examples which I'll use in another Collections blog entry in the future.
Using certain symbols such as '*' or '[' or '{' forces the Collections group-names into an alphabetical sort when using the "By Title" sorting-option, which people with many Collections will find more useful than the official and separate "Collections" sorting-option that is given us by the new software.
That official Collections Home-listing, as seen in the image at the right, sorts only by most-recently accessed Collection, making it quite difficult to find the right collection if you have many of them.
Note that the active Sort-type is shown at the top right and you can cursor up there to change it by moving the 5-way button to the right when you get there.
With 30 Collections and three pages of those on my Kindle 2 (U.S.), I had problems finding any Collection I knew held the book I wanted because I had to check each Collection name on the Home screens, which took forever.
Again, the image on the right displays the Default listing for sorting the Home screen books by Collections (rather than by Title, Author, or Most Recent).
Then note the image above that, at the left, for the workaround using the Titles sorting-option that I mentioned
"Drawback" and "Bonus" of using Titles Sorting-option:
Drawback: The individual books are shown BELOW your alphabetized Collections (which is why we'd make symbols prefixing the Collection titles -- to keep them above the listing of individual titles).
It should be easy to ignore the trailing list of book titles though.
Bonus: When you're viewing a Collections listing alphabetized via using the Titles sort, you can go directly to the Home screen section with the first letter of a Title if you want -- But ONLY THE FIRST LETTER because if you type two letters, the Kindle would start a Search of the entire Kindle for a word composed of those two letters. That takes an eternity, so keep it to only the first letter.
In other words, if you're looking for a title starting with the word "Nights," you'd type just 'n' and click the 5-way button, to be taken to a page with book titles starting with the letter 'n' -- this means that you can see your Collections in alpha order AND access a book title more easily when you want.
TIP
Periodicals - Amazon has a default Collection that holds your Kindle-edition subscriptions to newspapers and magazines when the issues are no longer the current ones.
When you're not using the Title/alpha sort (and instead sorting by "Most Recent" or by "Author"), you'll see Periodicals at the END of your Home Screen listing, along with the "Archived Items" Collection always created by Amazon for books you've bought from Amazon but don't have on your Kindle at the moment.
Tip2 - You can get to the last page of your home screen listing by typing the number of the last page and clicking on the 5-way button.
Following are some tips and examples from Amazon's help pages with tips I've added:
USING THE COLLECTIONS FEATURE
Information and Examples from Amazon's Online Help (all emphases mine)
* Collections: Organize your books and documents into one or more collections.
Sorting Content and Using Collections
As with earlier Kindle software, we still go up to the top of the HOME screen and navigate the SORT options, which now include (except for Kindle 1) "Collections," which are categories we create (except for "Periodicals" and "Archived Items" which are essentially Collections put in place by Amazon). The set-categories given us in earlier software (Personal Docs, etc.) are no longer offered, but we can roll our own.
The HOME screen looks the same as the Kindle 2's, but when we go up to the SORT options area at the top of the screen, we'll be able to choose to view the Collections we've created. You can see that the Collections are shown along with the number of books or documents in those Collections.The default Sorting-option for the Home screen listing of books remains "Most Recent First" unless we arrow over, at the top, to Collections option (or Title or Author) and click to select another sort-order.
You can review the Step-by-Step for Adding Collections and books for them at the top of this blog article. You can then just use the 'Back' option on your web-browser to return here.
As you've seen, Collections are created from a Menu key option when you're at the Home screen, and Collections can be renamed or deleted later (see screen image below).
A book can be in several collections, but even if it is in only one collection, the deletion of that collection won't affect the book, which will still be shown on and accessible from the Home screen.
Collections can be transferred across registered Kindle devices and you'll be able to import collections from your other Kindle devices under the Archived Items page, using "Add Other Device Collections."If you RE-download a deleted Amazon book that was once a part of a Collection you made, it will download to the Collection or category it was a part of before.
Except for no option for Alpha sorting of Collections, this feature is especially well thought out (except for the non-alpha order of the Sort-by-Collections listing), so it's intuitive, logical, and therefore easy to use after the initial intro to it. Collections have a tag-type structure, so that you can have a book in several groupings at any time. There is only one level of groupings though, so there's no sub-folder-like feature.
I have 30+ named Collections under which I want to find things. But it's still brought my list of 200+ books and documents way down and, as a result, it's now really easy to find the books I'm in the mood to read.
Kindle 3's (UK: Kindle 3's), DX Graphite
Check often: Temporarily-free late-listed non-classics or recently published ones
Guide to finding Free Kindle books and Sources. Top 100 free bestsellers.
UK-Only: recently published non-classics, bestsellers, or highest-rated ones
Also, UK customers should see the UK store's Top 100 free bestsellers.
A Story About Another School Trying Out Kindles 
KINDLE NEWS SNIPPETS actually. Saw a few interesting articles and just want to mention them and give links for those interested in reading any of them at the source. There are more than a few, so I'll keep these relatively brief. 
UPDATE2-4, 2/6/11 - Original posting was 8/27/09, Update1 was made 4/22/10.