You can create sub-folders for preset folders and for your custom folders.
Click the edit icon (pen symbol) next to the folder name and select Add sub-folder. You are taken to the Add Folder interface.
The Parent Folder is preset based on the contextual link. Add the name for your sub-folder to the Title field.
Click Save.
You can also add a sub-folder directly by clicking the Add Folder button. Select the folder name from the Parent Folder, and then add your folder name to the Title field. Click Save.