They're both useful skills. Reading from music will save you a lot of time finding and learning tunes, however to play them properly you need to have a feel for the music. Most folk tunes are written very simply, without notating the grace notes and shifts of rhythm that help to bring the music to life.

Playing by ear will help you to pick up tunes in sessions, or to learn them from recordings.

For folk music I think playing by ear is the more useful skill, but if you can try to develop both. I play by ear, and learned my instruments by ear, and I struggle with notation. I keep trying to improve my reading, but to be honest I'm not that motivated as I seem to manage pretty well without it. However I now wish that when I was learning I'd made more effort to learn to play from music.