In order to add products to your site, you will first need at least one category.
* Create a category by clicking the "new category" button.
Products must be placed inside categories
You must have at least one category, and all your products must be placed inside categories, otherwise Zen Cart will not work as intended and you may experience various problems, like products not showing up and searching is not working etc.
Now click on the newly created category and decide what you want to do.
Do you want the category to have a subcategory or do you want to add products to the category? There can not be both products and categories in a category, it must contain one or the other. There's no restriction to how many products or categories you can have in a category though, and there's also no restriction to how many levels of subcategories you want. The only limitation is your server and how much it can handle.
When you know what the category is to be used for, click the appropriate button to create one or the other.