In ADMIN

click catalog > categories/products

create a category by clicking the "new category" button
give category name, desc, ect and click the "save" button

click on the category you just created

now you will see 3 buttons
"back" "new category" "new product"

you can keep adding categories, as many as you want

one you click "new product" and add product to category you should not add any more categories tho

hope this helped!