The file system method is the preferred method but you have to chmod (changing the permissions of) the folders so vbulletin can place the uploaded files into them. Its not hard, but it can be a little overwhelming for more novice users. The benefits include a smaller database (which means faster backups and less database overhead).
Storing these items in the database is okay for a small site. The only real benefit is that the attachment items are included in your database backup. Of course, if they are in the file system - you can just use your ftp program to download those folders to your PC. Or use SSH first to zip them up then use ftp to download them.
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