To create a new folder:

1. Find "My Folders" in the folder list on the left side of your Yahoo! Mail.
2. Click "Add" located to the right of "My Folders".
3. Click "untitled" twice, highlighting the text and placing it in a box so you can type a new name for it. When you're done naming it, click outside the box to de-highlight it. Now you can drag and drop messages into it from your Inbox, or from wherever the messages are that you want to put in this new folder of yours.

With Yahoo! Mail, you can make up to 256 folders.

Please note: It's not possible to create a folder within a folder at this time. We receive a lot of requests for this feature so we'll be making it available in the future.