I'm in the process of having a site built and have questions about image hosting.
"For the Description area, can I use image url's that link to my existing server? Still the same domain but a folder that's not a sub folder of Magento. I have a folder structure set up where I hose images used for eBay."
=> Yes, you can insert many images from your existing servers. In Description area or fields using wysiwyg, you can put external links from different domains.
"Or is it better that all Magento images are stored the default method?"
=> Yes. If your server has CDN (content delivery network), your server quickly delivers media files to the end user cutting down on network latency. For example website: http://www.charleskeith.com/
"Also, is the default method to just group all images in one folder? No need for an organized folder structure?"
=>No. For products and categories, Magento will render images and put media/catalog/* . Static block and cms pages use folder media/wysiwyg. For design static content(image sprite, icon, etc,...), you can put images in current <MAGE_ROOT>/skin. When using Magento import products feature, you put your images into media/import/. You should know some places in Magento to store your images.