If you create the folder structure with the a Sub folders of the inbox, it works. You would think it would be the oposite but not ture. Example. I create my Clients folder at the same level as InBox then inside of that I created the Sub folder of the client folders. This comes up with client name from the source of folder as InBox. Not the SubFolder that the client file is under.
If you create a sub folder at the same level as InBox, for this example called Clients then create my clients folders under this one, the field source of folder is called what the subfoilder that the file is coming from. Attached is my screen shot to make this a little clearer.