Since SharePoint 2013, we have the ability to create folders within Document Sets. Unfortunately there is a bug in the navigation. As a result, in some cases the folder is not created within the Document Set but in the Document Library.
Steps to re-create the bug:
- Create a Document Library.
- Enable Content Types and add the Document Set Content Type.
- Create a Document Set.
- Create a folder within the Document Set.
- Open the folder.
- Now, within the folder, navigate back to the Document Set using the breadcrumb.
- Create a second folder (folder2) in the Document Set. After you confirmed the Folder Name the folder is created. But not within the document set. When you browse to the Document Library you will notice that the folder is created in the Document library instead of the Document Set.
Microsoft has confirmed this is a bug. It affects SharePoint 2013 SP1 CU June 2014 as well as SharePoint Online. The bug will likely be resolved in the last Cumulative Update for 2014.