My company has recently started using one drive. We have security groups set up to allow specific access to certain top level folders. Our IT rep has told us we can't apply folder level permissions. Is this correct?
Yes your IT rep told you right because folder level permissions are in control of the IT Administrator and they give you the access according to the company IT Policy and Planning.
It just seems wildly unintuitive to not be able to add/remove permissions for individual folders. Is there a different set up that we should look into to?