Friend has been having trouble with Mac Mail on Mac mini. (Category list on this discussion page only offered "Mac mini 2018 or later," but this is a late-2012 model)
We just created a new mailbox On My Mac called FLC.
We tried to create a subfolder inside FLC, but only location option is On My Mac (primary level, or in any of the existing folders. In that location pick-from list, FLC appears grayed out, with a checkmark, up above On My Mac in the list.
A workaround is to just make the folder on the main level of On My Mac, and then drag it on to the FLC folder. It seems to go in there just fine.
But I'd love to know why we're seeing this behavior.
Removed the plist files & envelope files (as seen here https://appletoolbox.com/mail-keeps-crashing-on-macos-high-sierra-fix/#Remove_Your_Mail_App_Preference_Files )
fwiw, there are 2 IMAP accounts, a couple dozen folders On My Mac, some with subfolders (a couple with thousands of messages, but almost all folders are pretty small)
Mac mini (late 2012) i5, 4 GB ram)
macOS High Sierra (10.13.6)
Mail version 11.5 (3445.9.1)