We use an 8 bit file system, this means for every Byte there are 8 bits. Following this it goes up in powers of two, which we usually round down to the nearest 0 to make more convenient when discussing. A kilobyte is 1024 bytes, a megabyte is 1024 kilobytes, a gigabyte is 1024 megabytes, and so on.

Now a Folder itself if it takes up any space is probably on the order of BITS rather than even a single Byte. Even though we can rename, create, delete, and move around folders they aren't really objects so much as designations. The way we interact with them is just a contrivance to make it easier for us to understand our computers, the way your computer actually sees the data is different enough as to be difficult for the average person to ever understand so we just pretend it works with folders like in the physical world.

There may not be a slowdown in the system but you may run into an issue with path length. Windows has a 255 character path limit. Meaning, if the entire path to the file is longer than 255 characters, the path will be truncated, resulting the file not being able to open.

For Example, if I have a file in this location:
C:/MyFirstYearAtTheStateUniversityTakingComputerScienceClasses/MyFirstSemesterTakingComputerScienceClassesAtTheStateUniversity/MyFirstWeekTakingComputerScienceClassesAtTheStateUniversity/MyFirstClassTakingComputerScienceClassesAtTheStateUniversity/FileName.doc

Because this path is 260 characters long, Windows will not recognize the last 5 characters, "e.doc" in the filename. Windows will then try and open a filename titled, "FileNam" with no extension. Since the file does not exist, you may think that there is a problem with the file itself, when in fact the path length is the issue.

Usually it is not so absurd, but sometimes the hierarchy drills down so many levels you will reach the limit. Just make sure you use short folder names and short file names and you will be OK!