Is there a significant difference when looping though objects of a certain tag to calculate distance from a player versus looping through a folder in workspace with the objects?
Collection service is useful when you have instances with different parents. In case you are ok with having all instances in a folder you will be fine with folders.
This is something that you can easily test for yourself by recording the time it takes to iterate through the children of a folder and the table of a certain tag which you get from GetTagged. There isn’t a difference; and if there is, it’s negligible.
What your concern here should be is which one best fits your use case and why, with respect to organisation and preference. Tags allow you to be less dependent on the hierarchy to find your tagged objects. With a folder, they have to be part of it, so it may interfere with your object hierarchy.
Are you trying to get the distance inbetween a player and other players? In that case, use collectionService on the rootPart.