See:

• https://support.mozilla.org/en-US/kb/sort-bookmarks-quickly-find-ones-you-want
• https://addons.mozilla.org/firefox/addon/auto-sort-bookmarks/

In Firefox 93 and later releases support to reduce the menu spacing via "Density: Compact" on the Customize page has been added. Note that "Compact" is no longer present by default as a Density choice in Customize.

• https://support.mozilla.org/en-US/kb/compact-mode-workaround-firefox

How do I add a folder to bookmarks? And is there any way to put that folder on the toolbar so it is easily accessible?

You can create a folder in a specific position on the Bookmarks Toolbar or in a drop-down list via the right-click context menu (Add Folder).

• https://support.mozilla.org/en-US/kb/bookmark-folders-organize-your-bookmarks

When I open Manage bookmarks the instructions say to "Right-click on the folder which will contain the new folder, then select New Folder" but no folders are shown. I can create a new folder but I can see it only in Manage bookmarks.

In the Bookmarks Manager (Library; Manage Bookmarks) you need to create a new folder via the Organize menu and not via the context menu.