Lots of people ask me how I keep my SketchUp models organized; there seems to be plenty of confusion about when to use Layers and when to use the Outliner. Both devices let you control the visibility of different parts of your model, but each has its own strengths and weaknesses.
First things first: Make groups and components
I always use groups and components as my primary means of organization. This is critical regardless of whether I'm using Layers or the Outliner. How come?
Using Layers doesn't keep geometry isolated; edges and faces on one layer can (and will) interfere with edges and faces on another layer -- UNLESS those edges and faces are protected as part of a separate group or component. Making liberal use of groups and components is the surest way to avoid spending hours repairing your work.
The Outliner (Window > Outliner) is basically just a hierarchical list of the groups and components in your model. Only these two types of things show up; "loose" geometry (ungrouped edges and faces) doesn't. If you want to use the Outliner to control the visibility of different parts of your model, you need to make groups and components.
Why I use the Outliner most of the time
I like using the Outliner because it's a straightforward way of seeing all the bits and pieces of my models: If I've been careful to name everything as I go along (the only place in my life where I exhibit tidiness), the Outliner makes managing everything relatively easy. I can hide and show groups and components by right-clicking on their names, instead of having to dig through the geometry in my model with the Select tool.
I tend to use the Outliner much more than I use Layers because I find nested groups and components to be a very logical way to organize objects in 3D space. Any given entity can only exist inside one group or component at a time. This means that when I hide a group or component from the Outliner,
I can be sure that everything inside it is hidden, too. If I unhide a group or component and something inside it still isn't visible, I know that all I have to do is turn on Hidden Geometry to find it.
With Layers, it's possible for a group or component to be on one layer and the entities it contains (edges, faces, groups, components, etc) to be on a completely separate layer. Turning on one layer is no guarantee that everything it contains will become visible. When this happens, turning on Hidden Geometry won't help -- stuff that's hidden on a layer which is turned off doesn't show up, even when Hidden Geometry is turned on.
Using Layers to control the visibility of individual entities in your model can be very, very tricky. Layers have, on occasion, made me want to throw my computer through a wall.
How I use Layers
Their sometimes frustrating nature notwithstanding, Layers are a pretty important part of the way I organize complex models in SketchUp. I can think of two major reasons why:
To improve system performance
I use Layers to control the visibility of large sets of similar objects -- furniture, plants, scale figures, cars -- that I want to be able to turn on and off all at once, regardless of which group or component they're a part of. Generally, this is so that I can control the way my model performs on my computer.
Turning off "heavy" stuff like trees speeds things up.
Suppose I have a building with three floors (see below). Each floor has some furniture on it. I model each floor as a separate group so that I can show and hide it easily via the Outliner. Each group contains the furniture on that floor. The building envelope is a separate group.
Use the Outliner to control the visibility of individual groups and components.
So that I can quickly turn on and off all of the furniture in the building (which will make the whole model easier to work with), I move each furniture component from Layer0 (the default) to a new layer called "Furniture".
Use Layers to turn on and off sets of similar objects that "cut across" groups and components.
Now I can easily control the visibility of individual aspects of my building independently. Being able to turn on and off the furniture all at once makes it a lot easier to get things done.
To keep some things really separate
As I mentioned earlier, turning on Hidden Geometry only shows hidden geometry on layers which are visible. I take advantage of this fact to make sure that when I'm modeling and I need to turn on Hidden Geometry for some reason (like maybe to unsoften an edge), I don't end up getting confused by every hidden entity in my model. I use Layers to organize big, unwieldy chunks of geometry that I don't need to see all the time, but that I can't delete. Examples of these are contour lines, imported CAD drawings, previous design iterations, and large amounts of entourage (trees, furniture, etc). I keep these things on separate layers (as part of groups, of course) and I turn them on only when I need them.
Plenty of modelers use Layers and almost never use the Outliner. Which system you choose is entirely up to you -- there's no right or wrong way to do things. As long as your big models aren't driving you crazy, you're doing fine.