First off - let me apologize for my inability to
read. Dunno why I saw "flag" versus "folder." Well, at least you know how to make flags, yeah? Sorry...
For the folders. Now, I've only done this with my Gmail account (which was set up in Setting under the Gmail link, not as an Exchange account). And, this does NOT work with POP accounts (well, with my RoadRunner account, anyway).
With those caveats:
Go to your Mail app. Tap all the way back until you are as far back as you can be (there should be no more buttons to press and at the top it should say "Mailboxes").
Go to the second box, titled "Accounts." Select one (I'm going to assume it has to be an IMAP account..., so I picked Gmail). When the account opens, at the upper right should be an "Edit" button. Pressing that will reveal another button, which is titled "New Mailbox." Pressing that button will give you another screen, where you will be able to type in the name of your new folder and also be able to select where to place it.
After you are done, you should be able to see the new folder. Well, at least I did.
So, give those instructions a try. Please let us know how you get on.
Marilyn