The default WorkflowProvider in Sitecore only supports the Workflows being stored as child items to /sitecore/system/Workflows, it doesn't allow for workflows in folders.
It's not something I've done, but if you really wanted support for subfolders, you should just be able to create your own class that inherits Sitecore.Workflows.Simple.IWorkflowProvider and configure it as the WorkflowProvider for the master database. Here's how the default one gets instantiated:
<database id="master" singleInstance="true" type="Sitecore.Data.DefaultDatabase, Sitecore.Kernel">
<workflowProvider hint="defer" type="Sitecore.Workflows.Simple.WorkflowProvider, Sitecore.Kernel">
<param desc="history store" ref="workflowHistoryStores/main" param1="$(id)"/>
You could get a headstart by decompiling the default WorkflowProvider and then adjusting the code to allow for subfolders in the GetWorkflows() method.