How you're doing ratings is fine. What has been suggested is that you use dynamic smartlists rather than static playlists. Playlists have the be maintained—apparently the reason for your original question. Once created, smartlists maintain themselves. They can include any criteria you like (genre, style, last played, etc. with specified limits, mixes, etc.).
Rating will often be one of those criteria.
So, for example, your smartlists might exclude tracks rated 1, limit those rated 2, favour those rated 5 but limit those played recently and/or many times. If you "dislike" what you're hearing, change the rating to 1—and it will be excluded from all your smartlists. If you "like" what you're hearing (more than is suggested by the current rating), bump the rating—and it will automatically occur more often in all your smartlists.
Search the forum for "smartlist." You'll find lots of interesting suggestions.
Welcome to the new millennium.