Lets say my website is www.mydomain.com I have a directory for red shirts( www.mydomain.com/red-shirts) . Now I am going to put 100 or so articles about red shirts in the red shirt directory. Should I do it like this www.mydomain.com/red-shirts/article1/ or should I just go with www.mydomain.com/red-shirts/article1.html and so on for each article. Does each article need to have it's own directory?
Indexing will be done more thoroughly if you don't go so deep with your directories. There is not preference by search engines for html, htm, php etc. Good luck.
I'd also go for .html. No point making that a directory, if nothing else will come there. Just make sure you use .html and stick with the technology.. i.e. you dont move to .php later on, as in this case, you'll loose all the PR assigned to those alreadt existing pages/URLs.