Folders stored in Overflow work much like any other item, with a couple of additional features. To view the contents of a folder, control-click and the contents will be listed at the bottom of the menu that comes up.
To drop items from the Finder onto a folder in Overflow to move those items into the folder. The best way to do this is to start dragging from the Finder, press the hot key to bring up the Overflow window, and drop onto the folder.