Hold the left mouse button down to highlight and drag the bookmark or
folder that you want to move, and release the button once the new location
is highlighted. As you drag over folders and subfolders, these areas
will be opened for you. Place the link under the folder where you want
to place the bookmark. It will be listed alphabetically within that
folder.
Another option: You can select a folder and click the right mouse
button to find an Explore option. This opens your Favorites list in
Windows Explorer. I have found that I have more control over the
reorganization process if I drag bookmarks into folders from this area.
Try both, see which works best for you.
For the next few functions select the Organize button. It will
reveal a screen that looks something like this: