m3u - 'File format not supported.'

I’m using VLC because WIndows Media Player does not work. When I open Media Player it does not show files in folders. It shows all the tracks from all the folders jumbled up in an unassorted heap. This is precisely what I am trying to get away from. 

I have placed the m3u file in the Music folder. I access it via Music mode. The Clip Jam tells me it is ‘empty.’

Could I use for instance the software mp3tag to create a simple functionality of playing all the folders sequentially in a subdirectory?