Next week, Microsoft will push out an update to Windows Phone 8.1 users who are part of the developers program but if you don't want to wait until then to see how the folders will work, a new video posted to YouTube has you covered. The feature works like you would expect; long press to be able to move a tile and by dragging it over another tile, this allows you to create a folder.
The folders, when opened, create space on the Start screen below the tiles to expand the folder with a fluid transition. You can see in the video above how this all works and we will have a more detailed look once the update is pushed down to developers next week.
The update will bring other enhancements to the platform too, such as a large update to Internet Explorer that will make it act more like iOS and Android browsers to provide a better mobile browsing experience.