New folders are created in root instead of currently selected folder When I click on a folder and choose File->New Folder the folder is created in the root directory of my current view instead of the currently selected (highlighted) folder.

How do I make it so when I create a new folder it will create the folder inside of the current highlighted directory?
You can't.  Finder creates new folders in the folder currently being displayed, not the folder you've highlighted.  First you have to display the folder you want the new one in - double click it, then create the new one.