In my experience, the two methods give slightly different results in Google.
Placing different categories in within separate folders often provides a dominant list: primary page followed immediately by the index files in the various directories (folders)
Search for “Transport for London” to see an example.
On the other hand, category files in the root directory would have a priority of one, and would produce better results in a search for that specific subject. Say, your site was about animals, and you placed all the categories in the root (cat.html, dog.html) they could be priority one. Searching for cat or dog would rank those pages higher.
I guess, it’s a balance really of whether the site or the categories are the more important.