Dropbox for both iPhone and iPad makes for a great way to free up some physical storage space on your devices. Instead of just lumping all of your mobile uploads into the main directory, Dropbox makes it easy to create folders to organize your content so you don't have such a hard time finding it later.
That's all there is to it. The folder will be added to your Dropbox and you can now start uploading content to it.
Dropbox lets you create folders inside of folders as well. To do so, simply navigate to the directory inside of an existing folder that you'd like to create a new folder in and just choose the menu option from there and create a folder. It will be created in the directory you're currently in.