How to create nested folders (i.e. a folder within a folder)

I was reading the booklet which came with iWork 08 and noticed (in a screen dump showing how to import images from iPhoto to Pages) a 'twisty' against an iPhoto folder. This (to me) implied that I can have a folder within a folder. i.e. I could have a 'Holidays' folder, then within there one for 'South Africa trip' and another for 'France trip' etc...etc...
I went into iPhoto this morning, but can find no way of doing this. I tried dragging and dropping, but the folders are all at the same level - i.e. the top level.
The help system actually said I could do this - but not how to do it.
Can someone enlighten me please? I'm sure it's something simple!
Thanks

Alasdair
It certainly is possible to have nested folders and drag and drop is the way to do it.
IF D&D isn't working, try quit iPhoto and launch it again. Then try once more.
Regards
TD

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