Categories provide a helpful way to group related posts together and for telling readers what a post is about. It also make it easier for people to find your content. Categories are more broader than tags. Categories is used for sorting and grouping content into different sections. A website publishing content on a variety of topics can separate their website into segments using categories.
Example: A news website can have categories for articles under News, Opinion, Weather, Sports, etc.
Categories can be displayed at the top or bottom of posts, on your menu, and in the sidebar depending on the theme and widgets you have activated. You can also assign multiple categories per post, and categories can be organized hierarchically.
Adding Categories via the site settings
To create a new category go to My Site → Settings → Writing. There you will see an option to manage categories. Select it and then click on Add New Category.
You can also create sub-categories from this page. For doing this click on Add New Category and select the category that you’d like to have as the parent category.