I started to dig into how this all works and then found that method 1 is actually busted in current versions of grails (tested in both 1.2.1 and 1.3). When you actually try to retrieve an author and look at it's books, it throws an exception
There is an open defect for it (4089) which has been open for quite a while.
Here's the exception that gets thrown:
ERROR util.JDBCExceptionReporter - Column not found: BOOKS0_.TITLE in statement [select books0_.author_books_id as author1_0_, books0_.book_id as book2_0_ from author_book books0_ where books0_.author_books_id=? order by books0_.title]
If and when they finally fix it, the differences between the two methods are that in method one, sorting is done at the database level. As you can see in the exception above, GORM was trying to do an "order by books0_.title" which would use any database index on the book.title field and return the objects in that order.
The second method would sort the objects in memory at the time that they get inserted into the set (using the compareTo method that was defined).
Until the current bug is fixed, I'd use method 2 because it's the only thing that works. It should be fine for relatively small collections of things. After it's fixed, I'd potentially prefer method 1 as the database should be quicker at doing the sorting with an index on the sort field.