Okay so under data files you merge all your mods into meshes and texture folders. Inside of my data files can I make a mod folder and inside of that make individual folders for each mod?

Just starting with mods?

You need to read the pinned thread at the top of the forum called http://www.gamesas.com/index.php?/topic/449239-oblivion-mods-faq/.

By merge all your mods - you mean extract them into the data folder? Well yes only if they have the right file folder format. Read that thread first.

Then get yourself an installer program like http://sourceforge.net/projects/obmm/ (for beginners) or http://www.tesnexus.com/downloads/file.php?id=22368 (more advanced).

The game has very regimented folder structure requirements so no it will not utilize mods that do not follow that. Best to use an installer.

Im kinda confused. Ive been downloading mods for a few weeks and I only use about 20. But im OCD and when something glitches ill remove my most recent mod but i have to search every folder to get it out. Thats why Im trying to organize them.

...thus the recommendation for OBMM (Oblivion Mod Manager). Once you learn how to turn your downloads into OMODs (most can be, and some are available in pre-made OMOD versions) installation and removal is normally a snap. You can use it to manipulate load-order (but I recommend using it in conjunction with BOSS for that) to help avoid conflicts. OBMM is not hard to master, a few sessions and you should be up to speed.

Wrye Bash can be even more helpful, but the learning curve is steeper. I don't recommend it for a novice. Learn OBMM and BOSS (nothing to it really) first, then when comfortable with those consider adding Wrye if your needs become more complex.

Also, don't forget to read a mod's provided text file(s). They usually contain installation instructions and load-order guidelines, as well as point out incompatibilities and how to avoid them when possible. That said, don't worry if a mod's installation guidelines doesn't mention OBMM/OMOD but simply say to drop its files in a particular Oblivion folder or folders. These will almost always be safe to OMOD, unless the creator specifically mentions otherwise.

-Decrepit-

For removing manual installed mods http://www.tesnexus.com/downloads/file.php?id=7557 is a great tool as well. It's newby friendly and does the job well.

Personally, I won't load a mod until I've converted it into OMOD format (used by OBMM). It makes uninstalling a mod as easy as a click or two, and it's wonderful for organizing load order. It doesn't let you organize them into folders or categories (which I think is what you're after), but otherwise it makes using mods a snap.