Folders are where a video lives: each has a colour, shown as a band on its picture. A folder can have one level of sub-folders.
Tags cut across folders, for themes like to try or rewatch. A video can have several.
Open Folders & tags (the folder icon) to add, rename, recolour, reorder (drag, or Move up and Move down), archive or merge. Each folder shows how much of it you've watched.
Settings → Comfort → Stronger folder colour makes the colour band wider, on both sides.