Add folders to Wallpaper

You’re not missing anything. In recent macOS updates, Apple changed how the Wallpaper settings work, and unfortunately the ability to freely add and manage custom folders inside the Wallpaper app has been reduced. At this time, additional folders can’t be manually added in the same way as before, and custom wallpaper folders also can’t be reordered within the interface.

That said, you can still use your own images by placing them in a regular Finder folder and selecting them via System Settings → Wallpaper → Add Photo...

Select "Ken Burns" from Apple icons then in top right portion of window select "Add Photo then Choose Folder" then navigate to your User's Picture's Folder to select your preferred pic.