It works just like ordinary Windows folders. Just cut and paste them to where you want them to be.
I have had to reload everything on my laptop but before doing so I exported all my saved emails.
After restoring the system I restored my Live mail Account and then imported all my emails and email filders.
The imported emails, inside their respective folders are shown at the bottom of the folder list as sub folders of sub folders of....
How can I move the imported folders up so that thet appear as folders alongside Inbox, Draft, Sent etc?