"Checking "Store Sent Messages on Server" and "Store Drafts on Server" add both of these items to "On My Mac", which is not what I want http://take.ms/1YmZk My Sent messages are already right above this in the Sent Messages folder and my Draft messages appear in the Gmail Drafts folder under my Gmail account name. So there is simply no way I could envision any Gmail user wanting to check these top two items on the Behavior Tab. Right now I have the Behavior Tab on my Gmail account setup like this - http://take.ms/dQAFf and my drafts appear in the Drafts folder in my Gmail account folder list and my Sent messages appear in the Sent messages folder for my Gmail account, at the top, just under my inboxs."
When you check to store messages, drafts, etc. on the server, any local mailboxes already created will be moved to On My Mac. That is what you are seeing. The server mailboxes will replace them under the main. You can move those messages within the local mailboxes under On My Mac back to the server mailboxes and delete those local ones. Since you have Sent & Drafts unchecked to store messages on the server, drafts and sent messages will not be available to other devices. However, I've already stated that storing Drafts on the server is a problem and I recommended it remain unchecked. The server draft mailbox will appear under the gmail account. For Sent messages, I recommend checking to Store Sent messages on the server. This will keep all devices synced.
Whether or not you want to use the All Mail Folder is your choice. You can't choose what it shows because the All Mail Folder shows messages in every label gmail provides. A message can't exist just in the All Mail Folder and can't exclude one that has a label attached to it. So if a message in the All Mail folder has an Inbox label and you delete it, the label will change to Deleted Item. If you delete it again, it will change to Trash. If you move it to another created gmail label, it will still be in the All Mail Folder. It remains in the All Mail folder until it is removed permanently from all gmail labels (mailboxes).
If you have created other Labels at the gmail website and you want to use them for organization, you can show them in IMAP. They will appear under the gmail account in the sidebar. All mailboxes and labels shown in Mail will be searchable. So if you want to look for a particular message, there is no reason to go back to the webmail site to find it whether or not you feel the need to use All Mail Folder.
As I said, using All Mail is your choice. Just enable it in IMAP.
I don't really use the gmail account that often, but my simple setup works just fine. I think trying to set it up differently just causes more issues and failures. I just prefer using my ATT and Apple email more. Much less issues with those. I use gmail when I need a different provider for various reasons.