To create a folder while composing a note:

1. Select "New Folder" from the pull-down menu.
2. Compose your note.
3. When you click "Save," a small pop-up window will appear. Type in the name of the new folder.
4. Click the "OK" button in the pop-up window.

Your note will be saved in the new folder you've created. If you want to create a new folder before composing a note, click the "Add" link next to Folders on the main Yahoo! Notepad page.