I wrote a little while ago about the painful UI around expanding and collapsing folders. Here are some more issues with folders in Notes:

• I can't name a top level folder "Rules" or "Archive" as these are special reserved names (for the mail filtering rules and archive features). Notes' error message explains that there is already a folder with that name, but as "Rules" and "Archive" appear in a different section (in the "Tools" special folder), it's not obvious that the error message is referring to those special folders.
• I had two folders in my migrated mail folders that I was trying to move to a different level in the folder hierarchy. I could move every other folder without any trouble, except for these two. I could drag and drop and reposition them and they would stay for the duration of the session, but they kept on reappearing in the old spot after restarting Notes. No error message was generated, they simply popped back into the old spot. After trying to figure this one out for quite a while, it finally dawned on me that this was the same problem as above. The two folders that refused to move were called "Rules" and "Sent". Renaming them to something else and then moving them fixed the problem.
• I had a migrated folder called "Archive" (so it appears to be technically possible to have both a folder and a special folder with the same name). Unfortunately whenever I tried to move an email to that folder it kept on displaying a dialog box asking if I wanted to archive my message. Renaming "Archive" to something else fixed that.
• Folders can apparently be moved and sorted manually, but the order doesn't stay between restarts of Notes.