How does one create hierarchical origanization in iPhoto

OK, I'm stumped. I can create albums. That's about all.
My photos are hierarchically organized on disc because they have to be in order to manage the volume. Yes, I can appreciate relational organization instead of hierarchical but in order to easily import the raw files first I need a place to put the photos and throwing them all in a single library makes it very hard to organize those photos afterwards. Relationships are created on the fly so I cannot predict what all possible relationships will be before I import the photos.
Placing the photos initially in hierarchical order is at least space efficient because the flat album organization approach of iPhoto runs out of album listing space very fast and is totally unwieldy.
It appears to me iPhoto goes directly from a flat file structure to a relational structure with nothing in between. Someone please tell me if there is some way for me to define hierarchical folders in iPhoto where I can dump my photos and then easily locate them later to define relational retrieval criteria (Events).
Thanks.
Michael

Guys, I appreciate your comments.
I got confused by the way iPhoto displays the small folder and album icons. They both looked the same to me. Well, the folders do behave like folders so I am OK now.
Maybe Apple can use a different colour for albums and folders.
I do understand relational databases and can see how Events behave similarly. Thanks very much - problem solved!
Michael

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