There is one very important difference between the kind of outline view that Word provides, and the kind of outliner that Scrivener is:
- The former is based entirely upon the stylesheet of the document; in order for there to be outline detail there must be outline level styles in use, and these correlate directly to visible text in the document. I’m not a Word expert, so I might be simplifying things a little bit, but I think I’m generally right in saying that for a document to have structure that structure must be a component of what the reader will see as structure as well (chapters, sections, subsections, etc.).
- Scrivener’s outline is different. For one thing it’s a “real outliner” in the sense that it describes structure outside of the document, and has significant features for manipulating, tagging and working with the outline itself. Components of that outline can become printable components of the document, but they do not have to be. You can have a folder that does nothing in the output because it has its “Include in Compile” checkbox turned off—or you can even classify all folders from levels 3 and up to be purely for internal organisation, not compiling into the output.
The synthesis of these two different approaches is that a Word outline is limited to what you can see in the document, it can never be more detailed than that, while a Scrivener outline can be greatly more detailed than the sum of what it produces.
So that it does not have a Word-style outlines is a feature, not a missing ingredient. 
It very intentionally does not take that path to its conclusion, because the idea behind Scrivener is that the sort of outline an author needs might not have much to do with what a reader needs. Word and similar word processor style programs take the approach that both the writer of the document and the reader will adhere to the same structure.
An extension to all of this is that if you feel Scrivener doesn’t have enough outline depth for you to work with the document, then maybe you simply haven’t built enough outline yet. I have areas of my outlines that consist of single-paragraph sections of text, for example, where I need it. I don’t always need that kind of detail, and so I’m glad that Scrivener lets me define how much detail I need, where I need it.
I don’t know why Word’s “Outlines” – which to me are the single most valuable feature of the entire Application – are so impossible to reproduce anywhere else. (Mac Applications that can otherwise read “Word” documents perfectly – like Finder preview or Text Edit – can’t handle Word outlines.)
So to dive a little deeper into the technical mechanics of what is going on: there isn’t an “outline” buried somewhere inside the RTF file that everyone is just ignoring. That’s a very specific interpretation of a document’s internal stylesheet settings which has been programmed to turn styled text into an interface that provides outliner capabilities.
TextEdit doesn’t even know what a stylesheet is. We had to add that by hand to Scrivener because no Mac development tools work with styles at all—let alone parsing styles into an outline, let alone the tens of thousand of lines of code it would take to make an actual outline that you as a user can click on and do stuff with. Such a complex task is arguably grounds for an entirely new piece of software!
That sheer scale of what you are suggesting everyone should just do aside, it could of course be done, but there are two big problems with Scrivener doing so:
-
It’s not feasible—at least not with a rich text editor base to work from. The Mac rich text editor cannot arbitrarily hide areas of text that are in the editor. So folding is out—which I would very much agree with you in saying is a shame. It would be really nice if Scrivenings could be folded in the editor interactively, and I doubt anyone could mount a serious defence of it not being included.
It is worth noting that Scrivener of course does have a concept of exclusion. While you cannot fold in the editor, you can achieve similar results by how you select items in the binder for viewing in Scrivenings mode. E.g. Shift-clicking a range of nodes and then Cmd-clicking out the ones you don’t want to see.
-
Folding aside, why would Scrivener spend huge amounts of code to create a Word-style outline when it isn’t even a document-based editing program? It is designed to operate as an outliner, with lots of little snippets of text in nodes, not one huge massive document. Stylesheet level outline parsing would work counter to its design premise of having short chunks of text in each outline node.
The above all aside, there is still the matter of indents and paragraph-level treatment. We don’t indent in Scrivenings for two reasons:
- Scrivener’s outline is so much more flexible than Word’s, with regards to what is document structure and what isn’t (and indeed that its outline can be entirely unrelated to documents at all, such as a repository of snippets from Web research, topically organised into folders). There are many places where indenting wouldn’t at all be appropriate. So it would be a lot of work for something that would only work for a few things.
- This one might also fall under the “impossible” arena as well as folding, in that the Scrivenings text editor is a singular text editor. Just because it is comprised of potentially hundreds of different file sources on the disk doesn’t mean it is a stack of 100 text editors in a single scroll view. It’s one text editor—and a rich text editor at that. So what is an indent in that case? Surely you wouldn’t want it to be actual formatting indents, so what then is creating this indent inside of a text file?
Paragraph-level nodes are a curious case, but if you go back to the design roots, it makes sense. Scrivener doesn’t consider lines to be outline elements because it is a “real” outliner, not a program parsing a text file into an outline. That doesn’t mean line-level automated outline nodes couldn’t be implemented, the question is whether they should. A real outliner has you definining what is and what is not significant structure, not the document, its formatting, nor the content within it in any way. You must establish what is meaningful outline detail and what is not. Word doesn’t have a facility for that. You can’t say that these 25 paragraphs are really not significant enough on their own to be taking up space on the outline as elements. In Scrivener that’s the default assumption—but you can still create paragraph level structure if you need it. The outline “resolution” can scale organically, as you need it, not as the document requires, or because it has paragraphs.
By the way: in Scrivener 3, hierarchy is minimally telegraphed in Scrivenings mode through the font size of section titles, when View ▸ Text Editing ▸ Show Titles in Scrivenings is enabled. The settings for how that works are found in the Appearance: Scrivenings: Fonts preference pane. I like to use a large top level font (36pt) with a larger drop per level (9pt), to help visually accentuate the outline structure of the flat document I’m editing.
But if I’m even at a loss and need to better know what the Scrivenings session looks like at the outline level, that’s no problem at all—just hit ⌘3 to toggle Outliner view on, and the section my cursor is in will be highlighted on the list. I can hit ⌘1 to return to writing, or even select another area of the local outline before doing so, treating the outline as a large “table of contents” for the current editor.
In closing: I don’t mean to suggest that our way is better or Words is inferior. We do of course feel there are advantages to the way Scrivener works—obviously—but such things are subjective. Some people may like how Word’s outline works more than Scrivener’s.
You are in essence saying we should throw away the whole Scrivener idea and just do what Word and other word processors do—you can’t really mix these two ideas together into one program. That is of course problematic when many of the people who have adopted Scrivener did so because they do not like how word processors handle large-scale document management—and when the guy who made Scrivener did so precisely because he never liked how Word outlines and stylesheets worked in the first place. I understand you like it—just keep in mind Scrivener was made for people that don’t, as an alternative! Expect it to be intentionally different, and hopefully find that although it is different, it has a rich and fully supported concept of that alternative.