1.we combine two apps to create a folder, and then combine the remaining two apps to create a second folder.
2.Now, hold a finger on one of the folders so that it becomes grayed out.
As soon as it does this, press the Home button twice to bring up the multitasking menu. This trick will not work if the apps begin to wiggle (when they enter the organization mode) before you hit the home button. You have about a half a second to get this right
3.From the multitasking menu, click on the home screen. You should see the folder icon remains enlarged and grayed out, and also that the folders are now wiggling.
4.Now, click the destination folder (the one you want to add the first folder to). You should see the icon of the first folder hovering above.
5.Now, click the home button once. Ta-da! You now have a folder within a folder. The best part is that these folders work flawlessly, and you can navigate through them, launch apps from within them and remove apps just as you would otherwise.
All thanks to http://www.reddit.com/r/iOShacks/