It is always recommended & considered to be a best pratice to keep things in their own seperate folders. This doesn’t only presents a clean structure but is also very easy to maintain. This is a small guide for all those “Who wants to install WordPress in a seperate folder?�.
If you are installing first time then skip to step 1, otherwise “back up all of your files before you do anything else.�

1. Install WordPress as you normally would, but instead of installing it in the root directory, create a new folder (like “blog� or “wp� etc.) & install it there.

2. Once you’ve completed your installation of WordPress, login to the admin panel and from the Options -> General tab, you’ll need to set your WordPress address to the folder you installed WordPress (without the trailing slash) and set the Blog address to your blog’s root address (without the trailing slash).

3. In a text or HTML editor, open the index.php file and change the location of your wp-blog-header.php to the new location.

Example: if your WordPress installation folder is ‘admin’,

< ?php require('./wp-blog-header.php'); ?> becomes < ?php require('./admin/wp-blog-header.php'); ?>

4. Upload the edited index.php to your blog’s root directory (i.e. not the ‘admin’ folder) and delete the index.php file from your WordPress directory (i.e. the ‘admin’ folder).

5. If you’re using permalinks or other rewrite rules, the .htaccess file needs to be in the same location as the index.php file (i.e. not the ‘admin’ folder)

Remember that your login and registration links will change. Where you used to visit http://www.yoursite.com/wp-login.php, the location will now be http://www.yoursite.com/admin/wp-login.php.

People should still be able to visit your blog’s homepage and see everything as they normally would, and you have a neat WordPress folder behind the scenes.
[ Source: optiniche.com ]