I have about 1000 games. I have 4 categories:
Developed - games I made for work and need fast access to for debugging and testing.
George's Games - which is my kid's games that is a dynamic category of full controller support, cooperative, local co-op.
More George's Games - which again for my kid is a dynamic category of partial controller support with local co-op.
PlayThese - Games I recently bought and I am lying to myself I have time. Only has 4 games in it, most recent purchases end up in uncategorized anyways. These are just 4 immersive sims I bought in the holiday sale in 2022.
Uncategorized - 952 games.
How do I manage all of this? Well, honestly I just hit the little "ready to play games" button which only shows installed or streamable games. If it's not installed, I don't really care about seeing it. If I want to install something then I know exactly what it is. Although multiple times a friend will be talking about a game I should play. I'll be waffling going "I don't really need to buy another game." Then I will check the Steam store page and it will say I already own it. I don't know how, most of the time I've gotten a key from somewhere and it's not something I actively bought.
So really the categorization system is "is it installed?" and if it is, it's important.