Step 1 - Drag 'N Drop
Android will automatically create a folder when you drag an app icon into another app icon. Simply touch and hold an icon to move it, and then just drag it to another icon you want this icon to be in the same folder with. Note that the target icon, i.e. the one your dragging an icon to, retains the icon for the outside of the folder.
For my example, I wanted to create a folder to hold all my online shopping apps like Amazon, NewEgg, etc. I use Amazon the most and I wanted to make it the icon for the folder, so I started dragging my icons into Amazon, one at a time.
Step 2 - Name Your Folder
Now that you've created your folder, tap the icon and you will see a little window pop up. You can tap towards the bottom and enter a name for your folder.
I typed in "Shopping" and now I have a Shopping folder to contain and organize all my shopping apps.
Step 3 - Treat Your Folder Just Like An App
Now that you combined all your app icons, you can move the folder around as you like. When you tap that folder, it will pop open the little folder window and let you select which app you want.