[database] database vs. flat files

Databases all the way.

However, if you still have a need for storing files, don't have the capacity to take on a new RDBMS (like Oracle, SQLServer, etc), than look into XML.

XML is a structure file format which offers you the ability to store things as a file but give you query power over the file and data within it. XML Files are easier to read than flat files and can be easily transformed applying an XSLT for even better human-readability. XML is also a great way to transport data around if you must.

I strongly suggest a DB, but if you can't go that route, XML is an ok second.