Yes, for subfolders to be included you should enable the ‘include subfolders’ option. The reason there’s a warning is simply because it’s easy to make mistakes and with this option enabled, the consequences are potentially so much greater.
Subfolders themselves may not be deleted if they contain for example hidden or system files which are excluded from deletion buy AxCrypt. Once again to protect from dangerous mistakes.
The secure delete function opens the file for write, and then writes a random sequence of bytes over the entire file, flushes everything to disk and the deletes the file.