The list shown under 'My folders' is flat list. It shows all the folders in flat state. To see your folders in hierarchy (tree form), click on a little folder icon located adjace to 'My folders' text.
Let me know if it doesn't work for you.
There are two views of folder in PSE11. One is the flat fodler view which you able to see on the UI by default. You may switch to tree view of folders by clicking Cmd+T or Ctrl+T or by clicking the small icon just infront of "My Folders" label in the left panel.
To import media from a folder hierarchy, you may choose too right click on corresponding folder in tree view of folders and choose "Import Meida". Or you may import using File >> get Photos and Videos >> From files and folders.
Thanks a bundle, that worked fine