Why/when should you use nested classes in .net? Or shouldn't you?

Use a nested class when the class you are nesting is only useful to the enclosing class. For instance, nested classes allow you to write something like (simplified):

public class SortedMap {
    private class TreeNode {
        TreeNode left;
        TreeNode right;
    }
}

You can make a complete definition of your class in one place, you don't have to jump through any PIMPL hoops to define how your class works, and the outside world doesn't need to see anything of your implementation.

If the TreeNode class was external, you would either have to make all the fields public or make a bunch of get/set methods to use it. The outside world would have another class polluting their intellisense.

From Sun's Java Tutorial:

Why Use Nested Classes? There are several compelling reasons for using nested classes, among them:

• It is a way of logically grouping classes that are only used in one place.
• It increases encapsulation.
• Nested classes can lead to more readable and maintainable code.

Logical grouping of classes—If a class is useful to only one other class, then it is logical to embed it in that class and keep the two together. Nesting such "helper classes" makes their package more streamlined.

Increased encapsulation—Consider two top-level classes, A and B, where B needs access to members of A that would otherwise be declared private. By hiding class B within class A, A's members can be declared private and B can access them. In addition, B itself can be hidden from the outside world. <- This doesn't apply to C#'s implementation of nested classes, this only applies to Java.

More readable, maintainable code—Nesting small classes within top-level classes places the code closer to where it is used.

Fully Lazy and thread-safe singleton pattern

public sealed class Singleton
{
    Singleton()
    {
    }

    public static Singleton Instance
    {
        get
        {
            return Nested.instance;
        }
    }
    
    class Nested
    {
        // Explicit static constructor to tell C# compiler
        // not to mark type as beforefieldinit
        static Nested()
        {
        }

        internal static readonly Singleton instance = new Singleton();
    }
}

source: https://csharpindepth.com/Articles/Singleton

It depends on the usage. I rarely would ever use a Public nested class but use Private nested classes all of the time. A private nested class can be used for a sub-object that is intended to be used only inside the parent. An example of this would be if a HashTable class contains a private Entry object to store data internally only.

If the class is meant to be used by the caller (externally), I generally like making it a separate standalone class.

In addition to the other reasons listed above, there is one more reason that I can think of not only to use nested classes, but in fact public nested classes. For those who work with multiple generic classes that share the same generic type parameters, the ability to declare a generic namespace would be extremely useful. Unfortunately, .Net (or at least C#) does not support the idea of generic namespaces. So in order to accomplish the same goal, we can use generic classes to fulfill the same goal. Take the following example classes related to a logical entity:

public  class       BaseDataObject
                    <
                        tDataObject, 
                        tDataObjectList, 
                        tBusiness, 
                        tDataAccess
                    >
        where       tDataObject     : BaseDataObject<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataObjectList : BaseDataObjectList<tDataObject, tDataObjectList, tBusiness, tDataAccess>, new()
        where       tBusiness       : IBaseBusiness<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataAccess     : IBaseDataAccess<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{
}

public  class       BaseDataObjectList
                    <
                        tDataObject, 
                        tDataObjectList, 
                        tBusiness, 
                        tDataAccess
                    >
:   
                    CollectionBase<tDataObject>
        where       tDataObject     : BaseDataObject<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataObjectList : BaseDataObjectList<tDataObject, tDataObjectList, tBusiness, tDataAccess>, new()
        where       tBusiness       : IBaseBusiness<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataAccess     : IBaseDataAccess<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{
}

public  interface   IBaseBusiness
                    <
                        tDataObject, 
                        tDataObjectList, 
                        tBusiness, 
                        tDataAccess
                    >
        where       tDataObject     : BaseDataObject<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataObjectList : BaseDataObjectList<tDataObject, tDataObjectList, tBusiness, tDataAccess>, new()
        where       tBusiness       : IBaseBusiness<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataAccess     : IBaseDataAccess<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{
}

public  interface   IBaseDataAccess
                    <
                        tDataObject, 
                        tDataObjectList, 
                        tBusiness, 
                        tDataAccess
                    >
        where       tDataObject     : BaseDataObject<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataObjectList : BaseDataObjectList<tDataObject, tDataObjectList, tBusiness, tDataAccess>, new()
        where       tBusiness       : IBaseBusiness<tDataObject, tDataObjectList, tBusiness, tDataAccess>
        where       tDataAccess     : IBaseDataAccess<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{
}

We can simplify the signatures of these classes by using a generic namespace (implemented via nested classes):

public
partial class   Entity
                <
                    tDataObject, 
                    tDataObjectList, 
                    tBusiness, 
                    tDataAccess
                >
        where   tDataObject     : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.BaseDataObject
        where   tDataObjectList : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.BaseDataObjectList, new()
        where   tBusiness       : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.IBaseBusiness
        where   tDataAccess     : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.IBaseDataAccess
{

    public  class       BaseDataObject {}

    public  class       BaseDataObjectList : CollectionBase<tDataObject> {}

    public  interface   IBaseBusiness {}

    public  interface   IBaseDataAccess {}

}

Then, through the use of partial classes as suggested by Erik van Brakel in an earlier comment, you can separate the classes into separate nested files. I recommend using a Visual Studio extension like NestIn to support nesting the partial class files. This allows the "namespace" class files to also be used to organize the nested class files in a folder like way.

For example:

Entity.cs

public
partial class   Entity
                <
                    tDataObject, 
                    tDataObjectList, 
                    tBusiness, 
                    tDataAccess
                >
        where   tDataObject     : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.BaseDataObject
        where   tDataObjectList : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.BaseDataObjectList, new()
        where   tBusiness       : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.IBaseBusiness
        where   tDataAccess     : Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>.IBaseDataAccess
{
}

Entity.BaseDataObject.cs

partial class   Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{

    public  class   BaseDataObject
    {

        public  DataTimeOffset  CreatedDateTime     { get; set; }
        public  Guid            CreatedById         { get; set; }
        public  Guid            Id                  { get; set; }
        public  DataTimeOffset  LastUpdateDateTime  { get; set; }
        public  Guid            LastUpdatedById     { get; set; }

        public
        static
        implicit    operator    tDataObjectList(DataObject dataObject)
        {
            var returnList  = new tDataObjectList();
            returnList.Add((tDataObject) this);
            return returnList;
        }

    }

}

Entity.BaseDataObjectList.cs

partial class   Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{

    public  class   BaseDataObjectList : CollectionBase<tDataObject>
    {

        public  tDataObjectList ShallowClone() 
        {
            var returnList  = new tDataObjectList();
            returnList.AddRange(this);
            return returnList;
        }

    }

}

Entity.IBaseBusiness.cs

partial class   Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{

    public  interface   IBaseBusiness
    {
        tDataObjectList Load();
        void            Delete();
        void            Save(tDataObjectList data);
    }

}

Entity.IBaseDataAccess.cs

partial class   Entity<tDataObject, tDataObjectList, tBusiness, tDataAccess>
{

    public  interface   IBaseDataAccess
    {
        tDataObjectList Load();
        void            Delete();
        void            Save(tDataObjectList data);
    }

}

The files in the visual studio solution explorer would then be organized as such:

Entity.cs
+   Entity.BaseDataObject.cs
+   Entity.BaseDataObjectList.cs
+   Entity.IBaseBusiness.cs
+   Entity.IBaseDataAccess.cs

And you would implement the generic namespace like the following:

User.cs

public
partial class   User
:
                Entity
                <
                    User.DataObject, 
                    User.DataObjectList, 
                    User.IBusiness, 
                    User.IDataAccess
                >
{
}

User.DataObject.cs

partial class   User
{

    public  class   DataObject : BaseDataObject 
    {
        public  string  UserName            { get; set; }
        public  byte[]  PasswordHash        { get; set; }
        public  bool    AccountIsEnabled    { get; set; }
    }

}

User.DataObjectList.cs

partial class   User
{

    public  class   DataObjectList : BaseDataObjectList {}

}

User.IBusiness.cs

partial class   User
{

    public  interface   IBusiness : IBaseBusiness {}

}

User.IDataAccess.cs

partial class   User
{

    public  interface   IDataAccess : IBaseDataAccess {}

}

And the files would be organized in the solution explorer as follows:

User.cs
+   User.DataObject.cs
+   User.DataObjectList.cs
+   User.IBusiness.cs
+   User.IDataAccess.cs

The above is a simple example of using an outer class as a generic namespace. I've built "generic namespaces" containing 9 or more type parameters in the past. Having to keep those type parameters synchronized across the nine types that all needed to know the type parameters was tedious, especially when adding a new parameter. The use of generic namespaces makes that code far more manageable and readable.