We branch when a release is ready for final QA. If any issues are discovered during the QA process, the bugs are fixed in the branch, validated and then merged to the trunk. Once the branch passes QA we tag it as a release. Any hotfixes for that release are also done to the branch, validated, merged to the trunk and then tagged as a separate release.
The folder structure would look like this (1 QA line, 2 hotfix releases, and the trunk):
/branches
/REL-1.0
/tags
/REL-1.0
/REL-1.0.1
/REL-1.0.2
/trunk
