Hello Nancy,
In February we upgraded from 1.9 to 2, and have just started the new academic year in Japan, so I have recently been learning about the wonders of the new file system.
> If we install Moodle 2.0 this summer will each course have a legacy file with the documents and images they have uploaded in the legacy file?
After upgrading from 1.9 to 2, Course file areas remain and can continue to be used, but are renamed to Legacy course files. In courses created after the upgrade there are no Course files areas. However, this 'old' feature can be reactivated or enabled: click here to learn how. However, this is not recommended. So, if your colleagues reuse an old and upgraded course, they don't need to upload files again, they'll still be there in the Legacy course files area. However, once they start using a brand new course, they'll have to re-upload files.
> Is there a best practice I should provide them over the summer ...
I imagine that for large institutions, an external repository is probably 'best practice'. Click here for a recent discussion about this. However, in my case, there are only 10 or so teachers using our Moodle system, so I am trying to encourage them to use the 'Private Files area'. The advantage of this 'repository' is that teachers can manage all their files within Moodle (which is what they are used to), and all files in the private files area can be accessed from any course by the teachers, something that could not be done with the 1.9 course files directory.
I was hoping to use external repositories like Google Docs or DropBox. However, as far as I know, at the moment it is not possible to configure the Dropbox repository for multiple users: see moodle docs about this. I have linked our Moodle to DropBox and was able to access my DropBox directory without any problems. Very neat I thought, but then discovered colleagues could not access their own DropBox directories. The only way to make this work at the moment is to create a new DropBox account and give all my Moodle colleague access to it.
We also experimented with the File System repository. However, this quickly went by the wayside when teachers discovered that they'd have to use a different system to upload files to that repository: i.e. ftp or file-sharing on our Mac network.
So I think the simple answer to your question re File Management Best Practice is that it depends on the number of teachers accessing the Moodle system, their technical expertise, and above all their willingness to try something different when they feel that the old system (Course files) worked just fine. Hope this helps. It'll be interesting to hear what you end up doing.