When you define your items, you can specify a category and a sub-category for each item. You may wish to define the appropriate item categories and sub-categories before you begin setting up your items.
Each item category describes a broad classification of merchandise, allowing you to group similar items together for pricing and reporting purposes. For example, if you sell sporting goods, you might define a category for each sport, such as GOLF, TENNIS, BASKETBALL, and so forth. For a book store, you might use FICTION and NON-FICTION categories.
Each sub-category describes a more specific classification within a category. You do not have to define sub-categories, but they are a useful way to group your items and make sense of your inventory. For example, a sporting goods store that sells GOLF items might use CLUBS, BALLS, and SHOES sub-categories, while a book store’s FICTION items might be divided into MYSTERY, ROMANCE, and SCIENCE FICTION sub-categories.
You must assign each sub-category to an item category to create a unique category/sub-category relationship. If you like, you can assign a sub-category to multiple categories or to all of your categories.
This video takes you step by step through this process.