Technically, the file hierarchy on disc must not affect the menu hierarchy in any way. But, as a general convention, we use the common practice that the file hierarchy reflects the menu hierarchy.
So, the menu structure for the files described under Directories and file names
Documentation/ | --> Index.rst | --> Topic1/ | -> Index.rst -> Subtopic1.rst -> Subtopic2.rst
would look something like this:
.. toctree:: :hidden: Topic1/Index
.. toctree:: :hidden: Subtopic1 Subtopic2
See Example Toctree to see how this is rendered.
What you can also do, is put everything into one file, e.g. Index.rst contains:
======= Chapter ======= Topic 1 ======= Subtopic 1 ---------- some text Subtopic 2 ---------- some text
The rendered result will look the same as the multi-file example above, meaning the menu hierarchy and the rendered headings on the page.
Whatever variant you choose, it depends what is already common practice in the manual you are working on and what is easiest to manage.