I'm pretty sure this is a new feature of the 2.3 update. If you add a Show label (under the Video tab) for a group of movies (for instance, Star Wars) then they will all show up in a sub-folder of that show name. So now, instead of seeing a long list of Star Wars: Episode I, Star Wars, Episode 2, etc., you just get one item with a little arrow next to it indicating there's a sub-folder.
Mac OS X Hints
http://hints.macworld.com/article.php?story=20081120151106524