Like in the Finder. You can drag and drop tags onto one another to nest them, or create a new tag while inside of another tag. There’s more about tags in the Source List section of the manual.
At present, the tag hierarchy works like in Aperture. It’s used for organization but not for assignment or searching. Records have exactly the tags that you assign, and EagleFiler searches for exactly the tags that you type. Nothing is implied.
There are some otherthreads discussing this issue.