Categories are used to 'tag' various forms in the system. The main application for this is to enable users to show forms under a specific category when browsing via the EForms page.
Here is an example set of categories:
The idea being that clicking on a specific category will show only the forms that are relevant to that category.
When a system has many modules, this can be a good way to separate out what forms work within which areas.
The Control Panel area for this allows you to select a pre-existing category and add or remove forms from that category.
Note that this is akin to adding a tag; doing this will not actually change the behaviour of the form in anyway.