Alex,
I think neelavardhan was talking about in Visual Studio or SSBI Development Studio.
To my knowledge and experience, you cannot create subfolders in a Reports project. This seems to be by design but I am not sure why.
To work around this somewhat, we use a separate Reports project in one big master project for each of the "subfolders". As an example, our SSRS Server is set up with a folder for each of the departments in the company. Each of these "folders" has its own project in our master reports projects. So these is an IS project, an Accounting project, a Sales project, and so on.
You set the properties for each Reports project to define the folder to deploy the reports to...so all the reports for a specific department are automatically deployed to the right folder. This is important because if you have reports on your server with cache modes and subscriptions, if you redeploy the report directly to the right folder, those cache and subscriptions setting will be retained. If you deploy all reports to some sort of "deployment" folder and then use the SSRS Report Manager to move them around, you will lose these cache and subscription settings.
Hope that helps you find a via work-around...
=======================================
People think it must be fun to be a super genius, but they don't realize how hard it is to put up with all the idiots in the world. (Calvin from Calvin And Hobbs)
Robert L. Johnson III
CCNA, CCDA, MCSA, CNA, Net+, A+, CHDP
VB/Access Programmer