It is indeed complex, Pseudonymous, and I have long since said that the '54 definition is no longer fit for purpose but there are some who insist that it is the best we have so we have to live with it.

The definition goes on to say

The term does not cover composed popular music that has been taken over ready-made by a community and remains unchanged, for it is the re-fashioning the re-creation of the music by the community that gives it its folk-character

So, a rendition of 'Yesterday', to use an earlier example, performed in the same way as McCartney does it, will not be folk. But a version performed at a folk club and "absorbed into the unwritten living tradition of a community" could well become one.

BTW - As I type this I am listening to "Aqualung 40th Anniversary edition". A fine album and should be absorbed by many :-)