If you were wondering why the Categories section is there for (inside Inventory), please note that it’s mainly to help you better organize you products.
If you wish to add a new category, simply use the Add Category button at the top:
In order to assign a category to one of your products, you will need to simply click on the product and choose from the category drop-down, the one that best suits it:
That’s it. Don’t forget to Save, once you’re done with the changes.