The original post described the exact scenario where Date Modified doesn't work.
Here's a similar one:
Folder A contains Folder B. Folder B contains an Excel file.
I just modified the Excel file and saved it. The Excel files Date Modified changed correctly.
Folder B's Date Modified changed correctly.
Folder A's Date Modified did not change. This seems grossly incorrect.
Does anyone have an explanation, answer, workaround?
The folder's Date Modified only changes when an item at the first level is changed. Changes within subfolders don't affect Date Modified of the parent folder(s). It's always worked that way in Windows.
A possible workaround is to create a folder watching script that updates the upper level folder(s)'s Date Modified when a change occurs in a lower level folder. You would have to be careful about not creating too much overhead with such a script, but it should be possible. There may be utilities out there that already provide that capability. If I find one, I'll update this post.