If you define both Category Groups and their Categories you will be able to attach multiple 'labels' or 'tags' to your Documents - multiple ways to describe those Documents, possibly many different kinds of ways of describing them - and subsequently you or your site's users will be able to find information using them.

You should create at least one Category Group before working with Categories. In the Categories entry screen you will define the individual category 'labels' or 'tags' that you will want to assign to Documents.  First you will choose a Category Group that you've defined, then the Category Code (which can be left as a number if you wish) and Name.

For example, if your Documents were jobs that you are advertising, within the Category Group "Skills" you might create Categories "Account management" and "Design"; within the Category Group "Market Sectors" you might create the Categories "Advertising" and "Law". 

As well as providing a convenient identification scheme, the system can then use your Categories in other ways: for instance in searching your database of jobs, or creating sitemaps. A number of tokens use Categories to do clever stuff.