It's not currently possible to sort your list of reports into folder in the Custom Report Writer.
Schools will often have a system for naming the reports to make this list easier to manage - for example, having the department name at the start of each report to make searching easier.
We also recommend that you give frequently-used reports a special character at the beginning of their name, eg. '! Behaviour' or '% Attendance'. This will make those reports go to the top of the list.