“Folders cannot be created in a system folder” what does that mean?

I just bought Microsoft Office Home and Business 2013.  I added my outlook email and my godaddy email account to outlook.  I created some folders for a set of emails I get quite often.  The send/receive takes FOREVER and then it gives me the notice "Folders cannot be created in a system folder".  What is a system folder?  And now this morning it gave me that error and I can't see my folders.  They appear to be gone.

So where am I supposed to create a folder?

And why are my 2 email accounts separated on the left pane?   When I was using the mail "tile" that came with Windows 8 I had these same 2 email accounts and they both send/receive fine and all in one place.  But now I can't move a new email to a folder I created last week.  It says system error.

Is it set up wrong somehow?  (I did the automatic set up option).