I just want to confirm that it is not possible to attach a workflow to a subdirectory in SPD 2007? If not, is there a way to setup a workflow to look at the documents in a subdirectory.
You would need to have some kind of meta-data associated with the file that could be used for conditional logic.
Instead of putting items in a folder, you could for example create a column called "Category" that can be used to group items within a library view AND evaluate the column in your conditional logic within the workflow. For example "If Category = 'HR' Do these actions"
In SP Designer you create a workflow and associate with a particular list and/or library. You can't associate with an actual sub folder. However, I am pretty sure that you could set up actions from Designer that will look at documents within the library. I think we need more of your requirements for a better answer