Categories
Grouping content so visitors can browse it.
Categories group your content in ways that are not the content itself — topics, collections, seasons, whatever your site sorts by.
Under Configure, Categories lets you create a group (say “Category”, or “Season”) and then add choices to it. You attach entries to those choices while editing them, and your website can then ask for everything in one.
Flat or nested
A group can be flat — a simple list — or hierarchical, where a choice can sit under another. Pick flat unless you know you need nesting; it is easier to reorganise later than to un-nest.