I've had a bit of experience with this. It boils down to this:
For IMAP, folders that contain other folders cannot be mail folders
themselves (i.e., a folder that has other folders in it cannot be a mail
folder itself). This can be bothersome to POP users who are used to using a
tree'd or outlined structure for storing emails in local mail boxes.
Eudora can create folders within folders but then it doesn't seem to be able
to tell them apart - i.e., it will not tell you that a folder containing
other folders is not a mail folder until you try to open it, then it will
give you some sort of error message. But, in the left pane you can expand
such a folder and then open the subfolders within it OK.