How to use Google Docs Folders as Labels
Google Operating System Blog says:
Google Docs has a flexible system of organizing documents. While initially Google Docs used a labeling system similar to the one from Gmail, the current version combines the benefits of labels with the simplicity of folders. The interface names them folders, but they’re actually hierarchical labels.
You can add a document to multiple folders without creating copies. Just go to ‘all items’ and drag the document to more than one folder. Since the sidebar doesn’t show subfolders, you can’t drag the document to a subfolder.