I was wondering if there is a way to fold or crimp paper cups so that they nest like actual cups for cups and balls?

Dixie cups nest fine as is.

Yep, Dixie cups work just fine. Been using them for years and was turned on to using them by Ron Bauer's "Dixie!".

Ron's routine uses fake Confederate money and a nice story line/theme that hait all make sense (in kind of a magician's logic kind of way).

I think I understand what Joey means. I think he wants to increase the gap between the cups. This can be done by making a vertical collar that would fit over each cup.

As Bill suggests you simply use the cardboard collar that is used to insulate/protect the hands from the hot fluid inside. Starbucks (amongest others) uses them.