I think you are confused, when ls is running it is actually looking if there are any sub-directories inside the newly created directory not the directory itself:

Code:

# ./newdir.ksh
Name a directory that ought to exist: DIR1
Directory does not yet exist. I will make it so...

Now create a directory inside the newly created directory: DIR1 and re-run the script, you will see ls listing the sub directory: SUBDIR1

Code:

# cd ~/DIR1
# mkdir SUBDIR1

Code:

# ./newdir.ksh
Name a directory that ought to exist: DIR1
That directory does exist, as well it should.
SUBDIR1

/home/user/DIR1/SUBDIR1:

I hope you understood.