Let's keep things in perspective: a million of 4KB sized is 4GB of space. Today, that costs about $4. Tomorrow, it will cost less. So unless you're talking about a legacy system, space is not that much of a concern.

Speed and convenience of access should be, though. Managing a million of files is going to be a major pain in the neck. Putting them into a directory three with about three levels will reduce the server load, but it will still be a major complication in your program.

I agree with the other people who said you should use a database. Yes, in a way a database is doing what you planned to do. However, the people who programmed that database spent a lot of time and used many sophisticated algorithms to get the database to do this stuff efficiently.

Realisticaly speaking, if you use a database, this is maybe a couple of hours work (mostly spent in learning the basics of SQL :-). If you decide on programming the whole thing yourself, you will spend days to weeks getting it right. If the cost of 4GB of space was a concern, what is the cost of several weeks of your work? What is the cost of the work of whoever has to maintain that system after you're done implementing it?

Use a database