Gallery doesn't have folders. Quick lesson on Android media:
When you turn the phone on or restart it, a system app named Media Scanner scans the entire phone (including any external SD card) for media files and builds a database of filenames, locations, types of file (mp3, jog, etc). This is so that an app like Gallery doesn't have to spend 30 seconds scanning the entire phone every time you run it.
When you run Gallery, it looks in the database and makes it's own list of all files it can display. (It ignores things like sound files, of course.) Then it displays thumbnails of any files it finds. (If it has no thumbnail of a picture file, it's supposed to create one.) This is a lot faster than having every media app doing its own scan. It's also why copying a file to the phone from a computer doesn't have it show in Gallery until the next time you restart the phone. If you do that regularly, you should run an app like
media.Re.Scan after the copy - it forces Media Scaner to do a new scan.
If you deleted a folder, it's not going to be found, but if you recreated it - in the place its app is expecting it (which, in most cases, means that you have to be rooted), and spelled the same (case counts), AND it's owned by the app (not by the file manager app that created it - another thing you'll need root for), it should work. Just creating a folder named Instagram won't work. It's in the wrong place, and Instagram doesn't own it, so it can't write to it (save files in it).
Fully uninstalling Instagram,
restarting the phone (that's important) and installing Instagram from the Play Store (that's also important - restoring a backup may not work) should fix the problem. You won't get back your old pictures, but you'll save your new ones.