You can use categories to define sections of your site and group related attachments. The default is “none”, i.e., the attachment is not associated with any category.

What’s the difference between categories and tags? Normally, tags are ad-hoc keywords that identify important information about your attachment (names, subjects, etc) that may or may not apply to other attachments, while categories are pre-determined sections. If you think of your site like a book, the categories are like the Table of Contents and the tags are like the terms in the index.

You can change the display of this screen using the Screen Options tab to set how many items are displayed per screen and to display/hide columns in the table.

When adding a new category on this screen, you’ll fill in the following fields:

• Name - The name is how it appears on your site.
• Slug - The “slug” is the URL-friendly version of the name. It is usually all lowercase and contains only letters, numbers and hyphens.
• Parent - Categories, unlike tags, can have a hierarchy. You might for example have a Landscape category, and under that have children categories for Mountains and Seashore. Totally optional. To create a subcategory, just choose another category from the Parent dropdown.
• Description - The description is not prominent by default; however, some themes may display it.

The “Attachments” column at the right of the table gives you the number of attachments associated with each category. You can click on the number to get a list of all the attachments with that category. The heading on the list page(s) will display the category value you’ve selected.

For more information:

Documentation on Categories

MLA Support Forum