What is the difference between a Library and a Folder?

A. Views, browsing, navigation: 

One library, two folders means: common views, easy sorting, filtering etc., browsing using folder structure or navigating using manage metadata etc. 

Generally, it is a bit easier to get "one container" or "common container" experience with this scenario. 

With separate libraries, you can e.g. use separate web parts to show documents on the same page from two libraries. Eventually you can use something like CQWP or CSWP to show them in the one container, but the experience will be different as out of the box you won't have e.g. drag and drop. 

B. Content types, manage metadata, versioning etc. One library means common content types and columns for all documents in library and same setting for version and so on. 

What is the impact? This can start separate discussion, but a few samples. 

When you work on document, it is good to have all the versioning enabled as, probably you eventfully want to compare versions etc., restore and so on. But, versioning can easily "trash" your repository if not managed correctly. 

So, when we work in one library, the process of removing unwanted versions can be a bit more complicated. When we would use two libraries (one for drafts, temporary files etc.), the policy can be as simple as "delete everything older than 90 days". 

Content Types - you can have many in one library, but if you consider process of acquiring metadata, there can be many differences. 

C. Type of libraries - there are few more libraries like "Page Library", "Picture Library" etc. They have couple of things, e.g. views, which can be useful to show pictures a little bit different way. 

D. Access management. Really not a huge difference here. Definitely item level access is not recommended, but.... well, in the scope of Office 365 capability of sharing document externally, this look a bit different. 

Some my experience with both approaches. 

1. Limit the number of libraries, this makes your life a bit easier as in a 2 months you will have new needs etc. It would be a little bit easier to e.g. modify views or bring new ones. 

2. Separate documents of "different kind" in separate library. Different kind means documents which have to be handled significantly different way in the scope of document management process. Let's say, expenses, invoices, etc. for project "like" to be stored in other library, as the process of handling them is driven usually by financial departments. Which is different than handling of project documents. Although they are both connected as, you can need "acceptance protocol" for issuing invoice. 

3. Design, implement and create folder structure with workflow as other way, you will have huge unmanageable tree.