I have had iPhone since 2009, always had iTunes on Windows and I distinctly remember being able to do this. I've not done it for a few years and it looks to me like they've turned the feature off in iTunes, which is a real pain. Doing it manually, on the phone takes forever and it's STILL so stupidly glitchy dragging from one screen to another. In the case of dropping an app in to a folder, and the folder scoots all over the place like you're playing cat and mouse. It's frustrating, it's not fun, and I have apps all over the place now... I don't like the 'library' because I haven't arranged it. Apple have done it for me, meaning I can't remember where the app is to find it. I heavily use Spotlight search to find all my apps if I can't see it in front of me.
Time Apple made this far more easier to move around - you know, like Samsung and other Android phones.