Use iPhoto's photo structure or create referenced library?

What do people generally recommend? I'm looking to set up my iPhoto library and I'm not sure how exactly I shoudl go about doing it....should I just reference by existing pictures folder? How exactly would that work? Or am I better off importing them all and backing up the individual files on a hard drive.

If I went the referenced file route would that just create a huge iphoto library file that would take up additional space?

I have yet to find a compelling argument against just using iPhoto's built-in management as was intended by Apple (except "I really enjoy micro-managing my own photos and doing a lot of unnecessary work" of course).

The iPhoto Library is automatically backed up by Time Machine, so there's no reason to worry about your photos.