To display subfolders in the Folders list, click the plus sign (+) to the left of each of the main items in the Folders list (Local Folders, your mail server, news servers, etc.). All of the subfolders appear beneath their main folder or server, and the plus sign becomes a minus sign.
If you click the main folder name instead of its plus sign, the subfolders display in the main pane of Outlook Express, rather than beneath the folder or server in the Folders list.