For many years, the sort order in Outlook was alphabetical, A to Z, and couldn’t be changed. However, after numerous calls by users for an option to allow free ordering, Microsoft finally introduced the feature in Outlook 2013.
The option is available in the Folders tab. It’s a toggle, and it retains your chosen sequencing should you temporarily revert to alphabetical.
Unselecting A to Z enables folders to be moved anywhere in the list, either by dragging the folder or using Move Up or Move Down when right-clicking the folder name: