Since I marked this question solved, I am not sure if I should have posted here, and it may no longer be in the correct subforum, but I figured all the relevant information is already contained here.
After upgrading to iOS 8.1 and having issues with the capacity bars on iTunes acting strangely (specifically the Other, Free Space, and Music capacities fluctuating from page to page, free space decreasing everytime I removed the music via iTunes) and having issues with syncing (see other thread link from previous post), and after using the solution suggested in this thread Can't sync music anymore with iOS 8. All disappeared. to try and get the music sync to behave, I am again missing the same parent playlist folder, contained playlist subfolders, and all 98 smart playlists distributed among these subfolders. I had also manually created a Guardians of the Galaxy playlist (non-smart) that did not sit inside any playlist folder and had sync-ed that to the iPhone. This playlist also disappeared from iTunes. The songs are still all in iTunes, it is only the playlists themselves which have gone missing.
So now I believe that this whole issue is not related to iTunes 12, but rather an iOS issue, specifically iOS 8 (and iOS 8.1) because I never had such issues with iOS 7. And I am thinking the playlist folders and playlists went missing prior because I had deleted all the music using the General > Settings > Usage > Manage Storage once before while on a trip out of town to make room for vids and pics. When I synced the iPhone with iTunes, the playlists and folders must have gone missing at that time and I did not notice until I tried to sync them back to the iPhone. I believe that the fact that the September copy of my iTunes library (which was made immediately prior to the iOS8 from iOS7 upgrade) restores my playlists and playlist folders points to an iOS issue. This leads me to believe that music syncing under iOS 8 means a true sync, that if you change something on the iPhone, it changes it in iTunes too. But that still does not explain why the songs remain. Nor does it explain why the parent smart playlist folder disappears, why not the two playlist subfolders that contained the actual smart playlists that were checked for syncing, and why not just those smart playlists alone? I have restored my playlists and playlist folders again using that September iTunes Library copy. However I have turned off Music Sync for the time being until I understand what is going on.
My conclusion was that the definition of Sync in iOS8 must have changed. In an effort to understand this I downloaded the iPhone User Guide for iOS 8.1, here are the relevant excerpts, along with relevant excerpts from the iTunes Help section of iTunes 12, but they really don't help me understand why this is happening. The relevant information is in bold, the informaton given does not clear up to me what it means to Sync Music in iTunes with an iPhone. Syncing is both defined as adding items from computer to a device, and as a vice versa 2 way process. This is confusing. Which is it in regards to Music? If someone has a handle on this, please, please post. Thank you.
“Music
Get music
Get music and other audio content on to iPhone in the following ways:
Purchase music from the iTunes Store: Go to iTunes Store. While browsing playlists and albums in Music, you can tap Store. See iTunes Store at a glance.
iCloud: Get access to all your iTunes songs, no matter which device you used to purchase them. Use iTunes Match to include CDs and other music you import. See iCloud and iTunes Match.
Family Sharing: To download songs purchased by other members of your family, go to iTunes Store, tap More, tap Purchased, then choose a family member. See Family Sharing.
Sync content with iTunes on your computer: See Sync with iTunes.”
“Playlists
Create playlists to organize your music. View Playlists, tap New Playlist near the top of the list, then enter a title. Tap to add songs or videos.
Edit a playlist. Select the playlist, then tap Edit.
Add more songs: Tap .
Delete a song: Tap , then tap Remove. Deleting a song from a playlist doesn’t delete it from iPhone.
Change the song order: Drag .
New and changed playlists are copied to your iTunes library the next time you sync iPhone with your computer, or through iCloud if you’ve subscribed to iTunes Match.
Clear or delete a playlist you created on iPhone. Select the playlist, then tap Clear or Delete.
Remove a song from iPhone. Tap Songs, swipe the song, then tap Delete. The song is deleted from iPhone, but not from your iTunes library on your Mac or PC, or from iCloud.”
“Sync with iTunes
Syncing with iTunes copies information from your computer to iPhone, and vice versa. You can sync by connecting iPhone to your computer, or you can set up iTunes to sync wirelessly with Wi-Fi. You can set iTunes to sync music, videos, apps, photos, and more. For help syncing iPhone, open iTunes on your computer, choose Help > iTunes Help, then select Sync your iPod, iPhone, or iPad.”
from iTunes Help:
Syncing means adding items on your computer to a device. You can use iTunes to sync the items in your iTunes library to your device, as well as photos, books, contacts, and other info
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To add items on your computer to your iPod, iPhone, or iPad, you sync them using iTunes. You can have iTunes sync items automatically (which is the quickest option), or drag items to your device manually (which gives you more control)—or you can do both. You can also remove items from your device automatically or manually.
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