When I open a search, it defaults to searching everywhere, and the same when I try to create a smart folder. How do I create a smart folder that only searches one folder (and all of its subfolders)?
You can't. You need to click on the folder's name to limit the search to that folder.
(Side note: Why, below this window, does it say "You must choose a community" and then only give you the options of 10.3 or earlier, 10.4, 10.5 or 10.6? I'm using 10.8 which is not an option.)
It says Submit my question to the community and offers these, among others: