folders

Few questions about mp3 player in mk2. - does it read id tags or just displays file names? - do all songs need to be in one folder or can i group them logically into folders on cd and then play only one folder for example?

I done a VERY simple mp3 disc.. FOLDER ONE - 15 mp3s FOLDER TWO - 42 mp3s FOLDER THREE - 35 mp3s I put in the disc and folder one plays.. but on the radio it shows up as folder 2 .. so i skip up one folder and it jumps to folder 4 which is my folder 3... Folder 2 is no...