Books doesn’t find anything automatically and doesn’t scan the internal storage. It shows you whatever is sitting under ~/Documents/Books directory (and its subdirectories). There’s “Check Downloads” menu option, it scans ~/Downloads for books in known formats and copies selected books to ~/Documents/Books. That’s it. The option in settings only applies to memory cards, not to the internal storage.
Yes, you can create subfolders under ~/Documents/Books by author or whatever. I actually do that myself. The bookshelf structure in the app will mirror the directory structure. I meant to eventually implement some kind of folder management UI but never got around to actually implementing it.