Hi Rachel,
Each new SmartList object you create, creates a new folder. However, that object's folder is added to the parent folder according to the series you indicate the new SmartList belongs in. If the new object is not identified as part of the Microsoft Dynamics GP product, you will not be able to choose a series.
As Richard said, a new folder is added to hold those SmartList objects not associated with a series. The name of that folder is 'Additional SmartLists'.
Leslie