You can create a new folder (or move an existing) folder under another folder simply by naming/renaming it. For example, if you have a folder Interesting, and you want to create a Cooking subfolder, you’d name that subfolder Interesting/Cooking. (That is what @bengotow was describing above.)
I agree this interface can be clarified. You can vote for that issue here: Creating Subfolders (Clarify Interface)