Subcategories not showing up in categories

Greetings,

I am making categories with subcategories. To me, it seems that if I click on “Category Top Level,” I should see “Category Level 2” and if I click on “Category Level 2,” I should see “Category Level 3,” and so on. Instead, all articles from all subcategories simply show in Level 1, with no hint that there ARE subcategories at all.

I AM seeing, in Category Level 1
Category Level 1 article(2)
Category Level 1 article(3)
Category Level 2 article
Category Level 2 article(2)

I SHOULD see in Category Level 1:
Category Level 1 article
Category Level 1 article(2)
Category Level 1 article(3)
Category Level 2

And I should then see when I click on Category 2:
Category Level 2 article
Category Level 2 article(2)
Category Level 2 article(3)
Category Level 3

I checked categories and subcategories behind the scenes – they are all there, showing as live. The articles in question are all assigned to the right subcategories, etc.

Any idea what’s going on?

Thanks!