The Categories tab allows you to create categories to organize your products into logical groups. It is also one of the places where you can add products to specific categories. You can also add a product to a category from the product’s page.
You don’t have to assign a product to a category. Customers will still be able to find your products by clicking on “All Products” or by searching for a general term. However, putting products into categories makes it easier for customers to browse your store and to find the products they are looking for. Think of categories for your store like departments in brick and mortar stores.
You are able to create as many categories as desired.
Categories can contain child categories, and those child categories can also have child categories. You can build a category structure with unlimited levels of sub-categories. But a category can only ever have one parent category.
The same product can be assigned to as many categories as you wish.
In addition, the categories you create in the admin are directly related to the Categories which show in the Category Tree on the left side of the page. Any changes to your categories will automatically update the Category Tree.