It's supposed to only work with new games you download, not existing.
I did read this on the Steam forums though for existing games:
1. in Windows: copy game folder to your steam games folder on other drive
2. in Steam: uninstall the game (right click on game and choose: delete local content)
3. in Steam: install into other drive (where you've already copied the files)
Steam will just verify that all files are present and change its settings, registry setting and any other settings that point to game location.
4. Done. No download necessary, no manual changing of settings.
That's pretty close to what Zacky guessed. Try it.