The Elephant backup system works with folders in two different ways. If a folder is included into the backup profile it can be set to include sub folders. If the folder is not set then it will just backup the files directly under the folder. If the folder is set to include sub folders all files under that folder will be backed up.
To see if a folder has been set or to change the setting of a folder. Highlight the folder in the 'Backup Profile' and right click it. If the folder is set to include sub folders then the 'Include Sub Folders' item on the menu will have a tick against it. To alter the value select 'Include Sub Folders'.