Many people recommend placing content in your /tf/custom folder to more easily organize it and keep it separate from official content. This doesn't affect how the game treats the content, but does make managing the files easier. You can't just drag the materials and models folders into your /custom folder like you can with the /tf folder, though. The game has a neat quirk when it comes to the /custom folder: Every subfolder within the /custom folder is treated as another /tf folder. So, in order for content in the /custom folder to work, you need to create another folder within the /custom folder. This folder can be called whatever you want; the name is unimportant. Then place the materials and models folders of the custom content into this new folder. The game will then treat the content within this /custom/whatever folder as though it had been merged into the root /tf folder.
There is no limit to the number of folders you can have within your /custom folder. I have almost 50 different folders in my custom folder, one for each separate content pack that I've downloaded, because I really like organization, and they all work. Alternatively, you can have only one custom folder and place all of your custom content in that. Or, if you don't really care for organizing your files and just need an easy solution, merge the content directly into your /tf folder; there's nothing wrong with that at all.