Folders are useful when you want to group together applications or websites. On day view, Folders are displayed in summary part and they are represented with a folder icon.
For example Document timeline already has two folders, Web Sites and Files, and all groups on this timeline are in one of the two folders. This keeps web sites and files separate from each other and it also allows for some advanced statistics. For example you can see statistics for Top 10 Web sites or Files.

All functionality to create, edit or delete a folder is in the Summary part.

Folders Web sites and Files on Document timeline are special and you will not be able to delete them.
You can create folders on all timelines except Tag timeline.
You can only create one level of folders, so folders can not have sub-folders.

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