I suppose you're using phpBB version 2.0.22 (available as one-click install via DreamHost Web Panel).
To add the feature which allows you to create sub-forums, phpBB2 requires a modification (mod, add-on). You can find this mod at http://www.phpbb.com/community/viewtopic.php?t=515482#p2833102 (temporarily not all items at this website are available due to new release and expected heavy traffic so check this link later).
Please not that the release of a new version of the forum software, phpBB3, is announced for today. More information is available at http://www.phpbb.com . Version 3 has build-in many new features, including the possibility to easily create subforums.
At this moment a one-click install of phpBB3 is not available yet, but I think that DreamHost will provide this soon. So for the time being you have to download and install the phpBB3 forum software yourself.
I'm running the latest release candidate of phpBB3 at my website, and I'm happy with the new features.