Where I find it most important to set it correctly is when dealing with Various Artist discs. In a Various Artist disc the Album Artist field would be listed as Various while in each track the Artist Field would contain the name of the artist.

If you choose to organize your files by Artist then it would place each track in a different album subfolder under each artist.
So if you organized the Woodstock album by artist it would look like this with a Woodstock folder under each artist.

Arlo Guthrie
Woodstock
Butterfield Blues Band
Woodstock
Canned Heat
Woodstock
Country Joe & The Fish
Woodstock
Crosby, Stills, Nash & Young
Woodstock
Jefferson Airplane
Woodstock
Jimi Hendrix
Woodstock
Joan Baez
Woodstock
Joe Cocker
Woodstock
John B. Sebastian
Woodstock
Richie Havens
Woodstock
Santana
Woodstock
Sha-Na-Na
Woodstock
Sly & The Family Stone
Woodstock
Ten Years After
Woodstock
The Who
Woodstock

Now if you organize it by Album artist you would get all the tracks in one folder under Various Artists and it would look like this.

Various Artists
Woodstock

So you can see that if you want to keep your discs intact as they were originally ripped in their entirety then you choose Album Artist, but if you keep only select tracks from various artist discs and prefer to keep them in their respective artist folders then artist is what you choose.

"Album Artist" is the main artist field. It means the main artist, group, leader name that the album is released under.
Also, it must be consistent for all tracks in an album to show together.

If Santana releases a Santana album with guest artist(s) on every track, it's still Santana's album. Hence, he is the "album artist".
"Artist" is for any other artists that are on an album that is not theirs.

If Santana is the primary artist on all of the tracks, Santana can be both the "Album Artist" and the featured "Artist".
[if you are looking to keep everything simple and don't care about listing out every artist on an album, you can just do this for
every album in your collection, with the exception of thematic albums or classical albums (possible but can be a bit tricky)]

If the album is thematic (evolution of punk singers, holiday songs, etc.) and there are many artists without a leader/primary artist, you can put "Various" in album artist
and list out the artists in "Artist" field using "; " (Lou Reed; Iggy Pop; Joey Ramone). You can also put that "Artist"
example in both fields if you desire.

Album Artist

I'm trying to pick an organizational strategy on my directories. Is there any important difference between "Artist" and "Album Artist"? Which should I use as the Folder Name of the folder that contains folders of individual albums?