Categories and sub-categories are groups in which products are clubbed together. This is carried out for proper presentation of these products on your webstore.
For instance, all products belonging to the category Toys & Games will be displayed together when this category is selected on the web store.
Categories are the first level of grouping, that are used for a set of products.
For instance, in the following example, Toys & Games is a category that will contain all products that can be considered as toys.
Now, toys and games can be of many kinds such as puzzles, and soft toys. You can further categorize such product into sub parts, that will overall belong to the main category. A sub-part of a category is called a sub-category.
Products that belong to the sub category Puzzles, broadly also belong to the Toys & Games category.
A category can contain multiple sub categories. As mentioned before, toys and games can be of may kinds, such as puzzles, soft toys, playing cards, and so on. All of these sub categories will broadly still belong to the main category, Toys & Games.
Now, there can also be a possibility that you might have different kinds of puzzles being sold in your store such as 3D puzzles and 2D puzzles. These too can be sub categorized differently into separate groups, all coming under the Puzzles category, and broadly under the Toys & Games main category.
Similarly, all sub-categories of the main category can be further broken down into separate branches.