Thunderbird folder can be broadly separated into two groups.
IMAP folders and Local folders
IMAP folders are folder that are created within an IMAP mail account. These folders are the same as those shown when you log into the server and are replicated with the server. These folders must follow the limits and restrictions imposed by the server. All IMAP server are not created equal, some have what appear to be rather strange restrictions on where a folder can and can not be created, and these restrictions are often times contradictory from one Server software package to another.
While we never really think about the program on the server we connect to to get our mail it does have relevance when creating folders for IMAP accounts. Things like , there appears to be a 40 character limit in Gmail to total folder names, including parents. On Other servers all folders have to be children of the inbox, other limit folder which have child folder to not actually containing mail.
These limits actually cause some problems as Thunderbird often does not know they exist and therefore will allow you to create a folder, which disappears almost immediately as it tries to replicate it to the server and fails.
As the name implies, these folder are local to your computer. They are not available if you access you mail account from a web browser, as mail in them is saved on the hard disk of your computer.
Thunderbirds local folders do not suffer from the limitations imposed by IMAP servers. You can have as many of them as you like and there can have as many levels as you need. The total content of each local folder is currently limited to 4Gb of mail and attachments, but that is the only real limitation other than disk space on your computer. This is also a good place to store your archive folder, as it frees space on your IMAP mail account. While this is not all that relevant to Gmail users with their Gigabytes of storage, many mail server offer relatively small IMAP storage quotas and saving or archiving to local folders is a way to free space on the server while retaining a copy of the mail.
If a folder simply can't be foound, if you enter the following code into the error console in the Tools menu and click evaluate the entire folder tree will be opened out so that you can look without having to click a million time to open the folder.