It sounds like you have the "Documents" tag open and not the "Documents" folder open in the Files app. They are not the same thing, but it is not at all obvious. So, let me help you out.
First you need to navigate to the Documents folder. To get there, take the following steps:
- Open the Files app
- Open the hamburger menu at top left of screen, is shown as 3 horizontal lines
- Ignore the Documents in the hamburger menu (that is the tag!), and instead tap below where it says "Pixel Tablet"
- Now you will have the home directory open.
- Tap Documents. Now you are in the Documents folder :)
Next you want to create a new folder within the Documents folder. To do that:
- Tap 3 dots kebab menu in top right
- Tap new folder in the kebab menu
- Use your keyboard to type the name of your new folder and tap OK.
There you go. Why the Files app does not start in the home directory is beyond me. It would save steps 2. and 3.