Considering how intuitive much of the Macintosh interface is for most folk, you've found one of the corners that are a bit odd and can be hard to figure out.

Turns out there are two ways to accomplish what you seek, however, one that's easy but requires you to trust the interface and another that's a more Windows-like configuration window with checkboxes.

First off, the easy way is to move to your hard drive in the Finder, so you can see the "Applications" folder:

Now, drag the Applications folder to the left side and watch what happens:

Move it carefully up and down until you just see a thin blue line (as I have in the above screen capture) and then let go of the mouse button.

Done!

If you'd rather try "plan b", choose Finder --> Preferences... and click on the "Sidebar" option. Here's what you'll see:

As you can see, simply click on the "Applications" button, close the window, and you've solved the problem a second way.

Either way, I think you'll be able to solve your problem now.