Categories are essential, as they enable you to group equivalent products. This helps customers find their way through the variety of your catalog, and narrow down their search when looking for a specific type of product. Categories also make it easy for the customers to find and compare them (thanks to PrestaShop's product-comparison feature).
You should create a new category from the moment you have at least two products with equivalent attributes. Products in a category should be comparable, if not interchangeable. Keep this idea in mind when adding new products and creating new categories.
Categories are managed in the "Categories" page of the "Catalog" menu. This page displays a table with the currently existing categories, with the main information displayed.
In order to display sub-categories, click on the parent category or select "View" in the action menu.