Is the target category perhaps collapsed? If so, does it help if you expand it first? Also, note that you can’t create subcategories in the “Other Projects” category, which is a bit of a special one, you will first have to rename that one to turn it into a regular category.
I think you can only nest categories to make sub-catagories, not projects.
Correct, apologies@nx6wtjv2b, I had misunderstood the question. @Steven is right, think of categories as folders in the Finder, and projects as files, you can create subfolders, but not subfiles.