Using Clean URLs

I have a question regarding using clean looking URLs. Let's say you want your URL to look like:

http://www.domain.com/subfolder

rather than

http://www.domain.com/subfolder/messy-title.php

Would you have to use an index.php (or index.html) file in subfolder with the clean URL?

So, if you wanted to create a number of product landing pages with clean URLs, such as:

http://www.domain.com/product1
http://www.domain.com/product2
http://www.domain.com/productn

would your actual file structure look like this:

http://www.domain.com/product1/index.php
http://www.domain.com/product2//index.php
http://www.domain.com/productn/index.php

If so, are there any problems associated with using multiple index.php files all over your site - such as search-engine-indexing issues?

thanks,
npa :D