After logging in, select Catalog -> Manage Categories

1. If create a Root Category, usually used as the main catalog for a store:
1. Select Add Root Category.
2. Enter the name of the category
3. Set Is Active to Yes
4. Click Save Category in the upper right hand corner
2. If creating a sub Category
1. Select the parent category you would like the sub category to show under.
2. Select Add Sub Category
3. Enter the name of the category
4. Set Is Active to Yes
5. Click Save Category in the upper right hand corner