That's a ZotFile function, not a Zotero function.

You can drag or add PDF annotations to notes individually in the Zotero beta.

Open a note in the PDF reader notes pane and either drag an annotation or right-click on it and choose Add to Note.

You can create a note from all annotations or add individual annotations to an existing note. It's not possible to create a new note from a single annotation.

Being able to create a new note from an individual annotation lwould be pretty messy. It would need to offer options to create either a child note or a standalone note, and the logic for when to show the options would be complicated. All the time? When you switch to the item pane, even though you have a note open? When you click the right-hand pane, even though there's still a note open? When you click back to the notes list? It's much cleaner to just create the kind of note you want first.

I also use a workflow where I split out the extracted annotations. While it is fine to do it manually for small references, I also find it is tedious for longer ones. I have a workaround for long text where I use a text editor to split the notes using the RIS format - basically, an N1 - in front of each but I want to split (usually by a heading) plus the TY and ER at top and bottom. I do this with a program called Textsoap which makes it easy to create macros, and then I import the notes back in and drag them back on the item. However, I think the beta version of Zotero out now will resolve this because it will allow you to annotate and tag individual annotations ;and search them), so notes would then be more notes you write.

The new feature "Add Tag" to annotation in the Beta pdf reader is brilliant. However, it does point to the desirability for Zotfile to enable extraction of individual annotations.

At present two intuitive approaches are:

Make an annotation, add tags and comments then drag it into a new note. You can then add "related" links. (comments made in the pdf reader transfer when dragging, but it seems that tags do not, at present).
or
Make annotations, adding tags and comments in the pdf reader then extract all annotations when you have finished annotating the document.

The first method takes advantage of the advanced features of the Beta pdf reader and has the important benefit of maintaining "atomicity" which is a highly desirable practice in note-taking (especially in the Zettelkasten approach).
Since it makes sense to link up your notes to any items or notes you can think of as "related" it is worth doing this for each note.

The second method also makes use of the advanced features of the pdf reader and has the advantage of allowing the user to read and highlight in the normal way, maintaining the flow of reading to help in comprehension. This method also maintains the order of your annotations (very likely helpful when using in a document you are writing).
However, Zotfile does not currently have the functionality of extracting individual notes, so a lot of work after extracting would be needed to achieve "atomicity" from this method.
Zotfile also names all extracted annotations as - "Extracted Annotations (timestamp)" which has the advantage of adding the timestamp but the disadvantage of not identifying the note helpfully (as many apps do using the first line of the note by default).

My solution at present is to read and highlight the pdf (maintaining flow), then go back and add tags and comments to each annotation, drag it to a new note, and add "related" links.
I also add a heading and format it as such using the Aa menu (helps to identify the note) and because Zotero currently does not allow the user to order items or notes (they are automatically ordered alphanumerically) I add a unique ID (using "date" in a script) to the beginning of the heading (maintaining the order of my annotations). Ideally, this would be handled by Zotfile or Zotero when creating new notes from annotations.
Then repeat for each annotation (maintaining atomicity).

If I want to change the order of my notes I can add a number at the beginning of the heading e.g: 1 20210421141147 The Presocratics

Currently my approach is compatible with using "Generate Report from Collection/Item" in Zotero. The note headings can then be used to rearrange the notes using Navigator in LibreOffice Writer (and no doubt with "outline view" in Word).
The marvelous "Add Note" feature in the word processor integration bar currently allows only one note to be added at a time but, since it seems to be modeled on the citation function, it will hopefully be improved to allow multiple notes to be added in one operation. (The option of dragging notes into a document would also be desirable but would obviously take a lot of work to be compatible across platforms).

I also use the Mdnotes plug-in to export all the notes attached to the item as plain-text .md files into a Notes directory/folder (as a kind of backup and perhaps for use in an outlining notes app such as Cherrytree, Treeline, QOwnNotes, or Zettlr).

I give a fuller account of my workflow here:
https://ontologicalblog.com/note-taking-with-zotero/