1. First navigate to the folder to which you want to limit the search.
2. Hit Command-F, or in the menu, go to File -> Find. The “tab bar” at the top of the search criteria window now shows the folder you are currently in as one of the options.
3. Select the folder, and then you can (as always) specify the other search criteria to your liking.
4. The results of the filters should show below.
5. Hit the Save button, and you now have a Smart Folder restricted to a specific folder (and its sub-folders).