Categories are used for many things in the online shops, including creating shipping rules, displaying category tiles, and organizing the shop.
To edit, add, or delete categories (or subcategories):
Once logged into your webshop, go to Products > Categories:
You'll see a list of all the categories that you shop has.
To add a category:
Use the left side where it says "Add new category":
Fill in the fields:
After filling in the above fields, press "Add new category".
To edit or delete an existing category:
Hover over the category you want to edit and options will display below. Select "Edit" to edit or "Delete" to delete. 
Categories are used to create shop tiles in most shops.
For example:
To change a shop tile image, after logging in to the shop, go to Products > Categories > and click "Edit" below the category you want to change:
On this new screen, scroll down until you see "Thumbnail". You can use these two buttons to upload/add image or remove image.
After changing the Thumbnail image, press the blue "Update" button at the bottom. The corresponding category shop tile's image has now been updated!